Economist Uwe Reinhardt Predicts End of HMOs Under Recession
Medical economist Uwe Reinhardt predicted that a new "defined contribution" system -- in which employers offer workers fixed sums of money to buy their own insurance instead of contributing directly to increasingly expensive managed care plans -- will replace HMOs "when the next recession strikes," Newsday reports. According to Reinhardt (who spoke at an Oct. 25 conference sponsored by Group Health, Inc.) the cost of managed care has risen as unemployment has dropped. After keeping pace with inflation from 1993 to 1997, the cost of employer-sponsored health plans rose 6.2% in 1998 and 7.3% in 1999, and is expected to rise another 7.5% this year. These costs can be attributed to employers' attempts to attract scarce workers by adding expensive benefits such as "direct access to specialists, mental health benefits and wider prescription drug coverage" to their HMOs. Robert O'Brien, the head of William M. Mercer's health care and group-benefits practice, explained that plans like the one Reinhardt imagines will allow employers to "limit their financial liability of health care and group-benefit programs" -- especially in a recession, when employers might particularly "struggl[e] to keep pace with the growing cost of employer-sponsored health insurance." Reinhardt's caveat: lower-income workers may end up in "tightly managed HMOs" with generic drugs while "the well-off will have a fee-for-service plan" and brand-name medicine (Murray, Newsday, 10/26).This is part of the KHN Morning Briefing, a summary of health policy coverage from major news organizations. Sign up for an email subscription.