DOES COMPETITION BY HEALTH MAINTENANCE ORGANIZATIONS AFFECT THE ADOPTION OF COST-CONTAINMENT MEASURES BY FEE-FOR-SERVICE PLANS

How groups insured by fee-for-service health plans react to increased competition from health maintenance organizations (HMOs) is an unresol ved question. We investigated whether groups insured by indemnity plan s respond to HMO market competition by changing selected health insura nce features, such;as deductible amounts, stop loss levels, and coinsu rance rates, or by adopting utilization management or preferred provid er organization (PPO) benefit options. We collected benefit design dat a for the years 1985 through 1992 from 95 insured groups in 62 US metr opolitan statistical areas. Multivariate hazard analysis showed that g roups located in markets with higher rates of change in HMO enrollment were less likely to increase deductibles or stopless levels. Groups l ocated in markets with higher HMO enrollment were more likely to adopt utilization management or PPO benefit options. A group located in a m arket with an HMO penetration rate of 20% was 65% more likely to have included a PPO option as part of its insurance benefit plan than a gro up located in a market with an HMO penetration rate of 15% (P < 0.05). Concern about possible adverse selection effects may deter some fee-f or-service groups from changing their health insurance coverage. Under some conditions, however, groups insured under fee-for-service plans do respond to managed care competition by changing their insurance ben efits to achieve greater cost containment.