American Journal of Law & Medicine

Consumer choice and the managed care backlash.


The backlash against managed care, in general, and Health Maintenance Organizations ("HMOs"), in particular, is a major health policy issue.(1) It has led to the formation of major commissions at the national and state levels, and to a great outpouring of legislative activity.(2) The U.S. Congress has been deadlocked over various versions of a Patients' Bill of Rights for the past two years.(3) As a nation, we are far from resolving the many problems consumers report experiencing with their HMOs. However, to prescribe an effective solution to the problem, it is important to understand the root causes of the consumer backlash. It is, after all, possible that a Patients' Bill of Rights will do little if it is not targeted to correct what is really bothering people about HMOs.

The introduction of HMOs was an attempt to correct some of the major shortcomings that consumers and purchasers experienced under the traditional fee-for-service indemnity ("FFS-I") system.(4) These problems included expenditures that were growing at an unacceptable rate, wide variations in medical practice not associated with differences in patient outcomes or medical need, and large amounts of inappropriate surgery and hospital admissions.(5) Under these circumstances, any serious policy that attempted to limit expenditures would need to create standards of appropriateness, to examine and curtail inappropriate use of services, and therefore limit the autonomy and authority of health professionals by subjecting their decisions to review and approval. Thus, any policy that tried to reduce and control health care expenditures to a significant degree would likely have caused a backlash among those physicians who would be asked to change the way they practice medicine and to be conscious of the costs of caring for their patients. One important cause of the backlash is doubtless the anger and frustration of many physicians who have seen their autonomy and authority for making patient care decisions threatened, if not substantially diminished.(6) Returning decision-making authority for patient care back to physicians may be an important part of the solution to the backlash.(7)

However, until the late 1980s, HMOs served millions of Americans without a consumer backlash. By January 1990, there were 33 million Americans in HMOs and still no apparent backlash. For example, the California Public Employees Retirement System ("CalPERS") manages a consumer choice system for over one million people, offering multiple, responsible choice plans, including a dozen health plans (both HMOs and Preferred Provider Organizations ("PPOs"), with a limited employer contribution.(8) The CalPERS Board of Administration, made up of elected employee representatives and elected officials, listens carefully to their members and surveys them extensively regarding their satisfaction with their health plans.(9) For years, satisfaction with the CalPERS program has been very high and there was no discernable outpouring of anger and protest. Similarly, the Federal Employees Health Benefits Program ("FEHBP") serves about nine million employees, retirees, and dependents, also with a multiple, responsible choice of health plans, including many HMOs and a choice of "wide-access" plans (FFS-I and PPOs), again for years without a backlash.(10) To be sure, there were individual disappointments and problems to be resolved, as there are under any health insurance scheme. The same was the case for employees of other large firms that offered a wide range of health insurance choices to their employees.


In the early and mid-1990's, employers of tens of millions of people moved their employees and their families from FFS-I, fully or mostly employer paid, to lower cost HMOs with restricted panels of providers.(11) These employees were often offered little or no choice, were given inadequate explanation of the limitations of HMOs, and did not visibly share the financial savings realized by their employers.(12) Many employers panicked at the double-digit premium increases of the late 1980's and adopted a "single plan replacement" strategy, thinking that this would be the cheapest and easiest way to manage health care costs.(13) Many employees, who were moved into HMOs with little or no choice, suddenly discovered that they could no longer receive covered services from the doctors with whom they had established ongoing patient-physician relationships.(14) HMOs became the instrument of a pure "takeaway."(15) Perhaps what is at the root of much of the backlash is this lack of consumer choice of health plans.(16)

We hypothesize that consumers are much more likely to be satisfied with their health plans, including HMOs, if they are given a choice of plans, especially a choice menu that includes a wide-access plan.



1. Data Collection

In 1996, the Legislature and Governor of California enacted the creation of the California Managed Health Care Improvement Task Force ("MCTF").(17) In 1997, the Governor appointed Alain Enthoven as Chairman of the 30 member Task Force, and Helen Schauffler was commissioned as Principal Investigator to direct a Survey of Public Perceptions and Experience with Managed Care. Between September 2 and September 24, 1997, a sample of adult Californians was selected to be surveyed using random digit dialing. Eligibility for the sample was limited to those who were 18 years or older, who had health insurance coverage at the time of the interview, and who had lived in California for 12 months or longer. The full sample consisted of 1,201 adults. The final sample used for analysis was restricted to persons insured through employer-sponsored coverage who were enrolled in either an HMO, PPO, or FFS-I plan, and included 827 respondents. The data were weighted by age, gender, race and region to reflect the distribution of the population in California.

The data were collected by the Field Research Corporation in San Francisco under the direction of the Center for Health and Public Policy Studies at the University of California, Berkeley. The survey interviews were conducted using a Computer Assisted Telephone Interview ("CATI") system and averaged 25 minutes in length. Interviews were primarily conducted in English, with 6% conducted in Spanish. Up to six attempts were made to contact and complete interviews with an eligible adult in each randomly selected household.

2. Survey Instrument

Respondents were classified as being enrolled in either staff/group HMO, IPA/network HMO, PPO, or FFS-I health plans. To identify the type of health plan in which respondents were enrolled, each respondent was asked to recall the name of their health plan at the beginning of the survey, and to read the name of their health plan directly from their membership card at the end of the survey. …

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