Trends in medical care costs. Do HMOs lower the rate of growth?

Abstract

Total medical care expenses are generally lower for HMO enrollees than for comparable persons with other coverage. However, a rarely addressed question is whether HMO enrollees also experience a slower rate of growth in costs. This paper examines data from several sources (Federal Employees Health Benefits Program, California State Employees, and Kaiser-Oregon) to compare trends in utilization and costs for HMO enrollees and comparison groups over periods of up to twenty-five years. Total costs can be decomposed into cost per unit of service and the number of units, or utilization of services. Trends over time in cost per unit of service (e.g., per hospital patient day) in HMOs are generally comparable to national trends, as are measures of factor inputs (e.g., physician office visits per physician per year). Trends in utilization, such as hospital days per 1,000 enrollees, show slight reductions for HMO enrollees relative to persons with conventional coverage. Therefore, the rate of growth in total costs (including out-of-pocket expenses) is only slightly lower for persons in HMOs. While HMOs may offer lower costs at any point in time, they have not been able to substantially alter the national patterns of medical care inflation and increasing resource use.