HMO Enrollment In Decline; PPOs Capture 48% of Market

ENROLLMENT IN THE NATION’S HMOS has declined in each of the last two years. Experts now believe the heyday of the classic closed-panel, gatekeeper model of the HMO has ended.

“HMOs are in full retreat,” observed Bryant Armstrong, a healthcare consultant in the Dallas office of Hewitt Associates. “They are not dead by any means. But their day as the prominent provider is over.”

As HMOs have fallen out of favor, PPOs (preferred provider plans) have become increasingly popular with consumers. As HMO enrollment dropped from 31% of the population to 23% in 2001, PPO enrollment jumped from 28% to 48% during the same period.

Moreover, the cost gap between HMOs and PPOs has narrowed. Hewitt Associates says that, through most of the 1990s, HMOs were about $1,000 per year cheaper than PPOs. But cost increases have cut this difference down to only $300 in recent years. “Since HMOs offer no competitive advantage in pricing, consumers are opting for other types of plans,” stated Armstrong.

The consumer switch into health plans offering discounted fee-for-service reimbursement is good news for most clinical laboratories and pathology group practices. Once many HMOs signed exclusive lab provider contracts with national lab companies, local lab providers found themselves locked out.

However, the consumer shift back toward PPO-types of health plans should make it easier for local labs and path groups to negotiate contract access with insurers. Physicians and consumers want choice and this should help local laboratory providers.

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