RECOMMENDATION: HMO exemption in state single-payer legislation must be specific and narrow

By David Himmelstein, Kip Sullivan & Steffie Woolhandler
PNHP 2010 Spring Newsletter

The single-payer model precludes private insurance that duplicates the public coverage – a measure required both to control costs and to avoid the emergence of two-class care. The question of how to treat nonprofit, staff- and group-model HMOs is complex because they combine a nonprofit provider of care (clearly acceptable in a single-payer model) with a private insurance plan (which is not acceptable). After much debate, PNHP decided to include such organizations in its proposals, but with tight restrictions to minimize the problems inherent in the insurance component of HMOs.

Because the term "HMO" has been used to cover a wide variety of insurers, it is important that legislation clearly define the parameters for HMOs that could participate in a single-payer system, and spell out the restrictions on participating HMOs. Failing this, private insurers would surely exploit any exemption for HMOs to maintain their stranglehold on the health care system.

Both PNHP's proposals and H.R. 676 (the single-payer legislation sponsored by Rep. John Conyers; you can find the legislation on the PNHP website at: have spelled out the key features that distinguish HMOs allowed to continue under a single-payer system from those that would be proscribed. Specifically, participating plans must:

(1) be nonprofit;
(2) "actually deliver care in their own facilities" through salaried
physicians who are employees (not contractors) of the HMO;
(3) not use their capitation or budget payments to cover hospital services (hospital services would be paid for through a global budget paid directly to the hospital); and
(4) not offer financial incentives based on utilization.

Very few HMOs will qualify under this definition.

When single-payer supporters in California drafted single-payer legislation (the current version is S.B. 810), they inserted language into the bill that was intended to exempt Kaiser Permanente. However, the language used in the bill leaves the door open to many private insurance firms who could label themselves "integrated health care delivery systems," "independent practice associations," or "integrated service networks" and hence qualify them to receive global budgets or capitation payments from the single payer.

The potential for confusion was illustrated in Minnesota where legislators introduced legislation (S.F. 2324 / H.F. 2522) modeled on SB 840 (the predecessor to S.B. 810) in May 2007. The drafters stated their intention to exclude private health plans, including HMOs. However, an analysis by the research office for the Democratic Farmer Labor Party caucus in the Minnesota House of Representatives stated that the bill did permit "health plans" to participate.

To avoid confusion, and the possibility that private insurers could slip through a loophole, we recommend that any single-payer legislation that proposes to exempt HMOs use either H.R. 676's definition of "HMO" or a similarly narrow and specific definition.