Wide disparity in what California plans spend
California’s 15 largest HMOs spent, on average, 82.6 cents of each health care dollar on medical care during the past year, according to a new study by the California Medical Association.
Kaiser Foundation Health Plan, the largest HMO in the state with almost five million enrollees, also paid out the most of its revenues, averaging 96.5% of each dollar. Following Kaiser were Prudential Health Care Plan of California, with 87.4% of revenues going to care, and CIGNA HealthCare of California, at 86%.
Paying the least of the 35 HMOs surveyed was the Chinese Community Health Plan, which reportedly paid out 72.3% of revenues. CaliforniaCare Health Plans, owned by WellPoint Health Networks and marketed under Blue Cross, returned 74.3% of revenues; and Foundation Health returned 77.4% of each dollar into care.
The promise of managed care’
"The promise of managed care was that it would make the health care system more efficient by removing administrative waste and inappropriate care without sacrificing quality," said Jack Lewis, MD, CEO of the medical association. "But in reality, in the for-profit era, we some some contradictions. Some administrative costs seem to be rising."
HMO representatives noted that the largest HMOs had decreased their overhead slightly over the past three years. They said the survey was flawed because it ignores the facts that more than half of the state’s enrollees are covered by preferred provider organizations (PPOs) and that the HMOs serve small groups and high-risk individuals.
Another survey, conducted by Business & Legal Reports, of 4,000 employers found that employer health care costs are 4% lower than the national average if employers contract with HMOs.
HMOs are still the best buy
The Survey of Employee Benefits shows that employers contracting with HMOs have an average annual health care cost per employee of $3,125, compared with $3,261 for all employers reporting health care costs. PPOs represent the next least expensive way for employers to contract health care, with an average cost of $3,235 per employee.
Nonetheless, costs are rising sharply, up from an average $2,824 per employee two years ago. The PPOs’ cost was $2,687 per employee two years ago. Meanwhile, Blue Cross/Blue Shield averages $2,258 per employee and commercial insurance averages $3,580 per employee.
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