Posted on March 24, 2000

Claim That HMO's Save Money Is Little More Than "Folklore," Health Affairs Study Finds


March, 2000

Lull in health inflation in mid-1990's explained by other factors

Washington, D.C. -- While millions of Americans have been shunted into HMO's over the past decade, there's no evidence that managed care saves money, according to a study in today's Health Affairs, the nation's largest health policy journal.

"HMO premiums are up nearly 20% in the past two years, but a lull in health inflation in the mid-1990's is so often attributed to HMO's as to have become 'folklore,'" noted study author Kip Sullivan, who reviewed three decades of research for the study.

"The claim that HMO's are more 'efficient' than the fee-for-service (FFS) plans they replaced is typically based on one of two research errors," said Sullivan. "Either the study didn't take into account higher HMO administrative costs, and only looked at cuts in hospital or doctor care, or it didn't take into account factors like cherry-picking healthier patients or cost-shifting to other payers as an explanation for lower premiums."

The study also notes that factors other than the spread of HMO's explain the mid-1990's lull in health inflation. These include the threat of price-controls and health reform in 1993, the well-documented insurance underwriting cycle (three years of high premiums followed by three years of low premiums), a low inflation rate in the rest of the economy, and HMO's lowering premiums (short-term) to gain market share.

"As managed care enrollment has soared so have administrative expenses," said Dr. Steffie Woolhandler, Associate Professor of Medicine at Harvard. "The percentage of workers in the health system dealing with paperwork has increased from 18% to nearly 30%, belying the myth of HMO efficiency."

"The verdict is in on corporate control of health care. It has failed," said Dr. Quentin Young, National Coordinator of Physicians for a National Health Program. "The US spends more on health care than any other country in the world yet leaves 45 million uninsured and ranks 37th in performance according to a recent study by the World Health Organization. It's time for not-for-profit (single-payer) national health insurance."