Consumer Choice of Health Insurance Plans and Providers -
Testimony before Presidential Commission

Consumers Union¹ appreciates the opportunity to participate in this panel on consumer choice of health plan and provider.

As you know, the health care marketplace is changing rapidly, with more and more consumers enrolled in health plans that restrict their freedom of choice of doctor. Managed care systems have replaced traditional fee-for-service medicine's incentives to overtreat with strong incentives to undertreat. With this revolutionary change in financial incentives comes the need to strengthen the regulatory structure which has not evolved to keep pace with the marketplace change, leaving quality of our health care in jeopardy. Consumers Union believes that all health care plans, regardless of the form they may take, should be required to meet minimum consumer protection requirements that ensure the delivery of quality health care to all enrollees. We are hopeful that this Commission will provide helpful, timely guidance to Congress, which is likely to consider legislation in this area in the near future.

In my statement, I explore various dimensions of the issue of consumer choice. Some of the key points are:

• Consumers deeply value the freedom to choose their doctor.
• Consumers need better information than is now available to make a well-informed choice of a health plan.
• Unless we develop techniques to adjust for varying health risks, introducing choice can have some deleterious effects on the health care marketplace.
• Freedom to "vote with your feet" provides some consumers more control over the quality of care they receive, but does not replace the need for strong quality controls.
• Consumers enrolled in managed care need to have an escape hatch that allows them to go outside of their plan's network in certain situations.

With an accelerated trend toward increased privatization of the health care marketplace and increased reliance on managed care, the need for national, enforceable quality standards is growing. We urge you to do all you can to fuel the momentum in Congress to enact quality standards.

Consumer Reports' Findings

The need for national enforceable consumer protection standards for health care plans -- and the significance of consumer choice of provider for consumer satisfaction -- are confirmed by Consumer Reports' findings in its articles on managed care (based on surveys of our readers) in both 1992 and 1996. Some of our key findings were:

• About 10 percent of our readers said that they did not get the medical treatment they felt they needed because their HMO discouraged it (compared with just 2 percent in traditional coverage) (1996).²
  
• 18 percent of our readers went outside the HMO to get the care they believed was needed (1996).
  
• Point-of-service plans (which have grown from 20 percent to 74 percent of the HMO market between 1992 and 1996) provide an escape hatch for many consumers who want to go outside of an HMO plan without a referral, and without shouldering the entire cost out-of-pocket (1996).
•  
  15 percent of our readers reported that their doctors left the plan during their treatment (but some plans had higher turnover, with nearly 30 percent of two plans reporting their doctors left). High doctor turnover was associated with lower consumer satisfaction (1996).
  
• Consumer satisfaction tends to be higher with HMOs that allow greater choice of specialist, and lower when access to specialists is restricted (1992).³

Consumer Support for Choice of Provider and Choice of Health Plan

The health care marketplace is in the midst of a rapid shift from traditional fee-for-service coverage to various forms of managed care. While 61 percent of employers offered indemnity plans in 1992, only 38 percent did so in 1995. A recently released report by KPMG Peat Marwick found that the percent of employees with the option of "conventional insurance: declined from about 90 percent in 1988, to 57 percent in 1996 and 51 percent in 1997.⁴ Enrollment in HMO's grew from 37 percent in 1990 to 56 percent in 1995. Because of this shift, consumer advocacy on "choice" has expanded from a focus on "freedom of choice of providers" to the addition of the goal of "freedom of choice of health plan."

Consumers Union strongly supported "freedom to choose health care providers" as one of the five key principles for health care reform in 1993- 1994.⁵ As we stated at the time:

Americans want to be free to choose their own health care providers. Consumers want to continue long-standing relationships with their family doctors, specialists, pediatricians, and other health care providers. ... Consumers want to be assured that if serious illness strikes, they will have access to the highest-quality specialist and specialized treatment center.⁶

With the shift in the marketplace, and fewer and fewer consumers are enjoying a choice of a health plan that provides full choice of provider, consumer advocates have identified the need for freedom of choice of health plan as an additional goal. The two choice parameters often go hand-in-hand. In many cases, it is only by providing a choice of health plans, one that includes a fee-for-service alternative, that consumers are assured full freedom of choice of providers.

One of the key reasons that choice of provider is so important is that it puts in the consumers' hands a key tool many consider essential to achieving quality care. Only by having the freedom to seek the best quality surgeon, regardless of health plan affiliation, will the parents of a child needing major surgery be fully satisfied.

The freedom to switch from one health plan to another provides consumers with the ability to "vote with their feet" in search of a higher quality

KEY ELEMENTS FOR COMMISSION'S CONSIDERATION

1. Consumer Information Needs

When consumers have a choice of health plans and a choice of providers, the only way to fully benefit from this choice is to have information about the quality of alternative health plans and information about the quality of care that is likely to be provided by providers. As Consumer Reports wrote in 1996, despite intensive efforts to improve comparative information on health plans, at this time consumers do not have a adequate information on health plan quality. Consumer Reports found that HEDIS data can't be reliably used to compare plans. Data come from the health plans, and, for the most part, are not audited by an impartial third party. There are other efforts that are more focussed on outcomes data. The Foundation for Accountability (FAACT), for example, has released measures that are designed to assess the quality of plans' treatments for diabetes, breast cancer and major depression.

While it is encouraging that many employers and other players in the health care marketplace are accelerating their efforts to collect better data that enables comparison of plans, it is clear to us is that there is a need for accurate, current, and user-friendly information about coverage and quality-of-care. Consumers need reliable information on quality of care based on standard measures, audited by an independent entity or collected by a neutral third party. They need readily accessible data, in consumer-friendly format.

We were pleased with the introduction of the "Federal Health Care Quality, Consumer Information and Protection Act" by Senators Lieberman and Jeffords. We endorse its proposal for development of comparative information on health plans purchased or made available through the federal government, in particular with increased reliance on the Agency for Health Care Policy and Research to help develop and disseminate new measurements of quality. While information alone will not solve the growing problems in the managed care market, better information for consumers is clearly part of the solution.

One of the challenges that has not yet been addressed satisfactorily by policy makers is the need to facilitate choice between plans by designing standard benefit packages so that consumers can make apples-to-apples comparisons. Researchers who reviewed six "consumer-choice" health plans (e.g., Xerox, Health Insurance Plan of California) identified the need for standard benefits to create a level field for comparison.⁷ We believe that the Medicare supplement insurance market provides a useful model of how to take a market characterized by unlimited, and sometimes frivolous, variation, and converting it into a market where consumers can make informed comparisons among the competing plans.

The bottom-line for consumers: without better information enabling comparisons of health care plans, expanded choice of health plan will not necessarily translate to better choices made by consumers.

2. Choice of Health Plan vs. Choice of Provider

We believe that consumers need and value both choice of health plan and choice of provider. One reason that choice of health plan is important is to allow consumers a range of options with varying degrees of choice of doctor. By letting consumers make the selection, they are able to make the cost vs. choice trade-off themselves. Unfortunately, fewer and fewer consumers have the opportunity today to have the option of a health plan that allows complete choice of doctor.

At a time when most consumers were enrolled in traditional fee-for-service coverage, or could enroll in such coverage, freedom of choice of health plan was not a key consumer concern. The rapid decline in indemnity coverage, or the choice of indemnity coverage, and the rapid reduction in percentage of employers offering a traditional plan has in part shifted consumer needs: now choice of health plan has become important to consumers, since there is wide variation in quality and wide variation in the extent to which plans allow freedom of choice of doctor.

Once a consumer has selected a health plan, we believe that consumers should have a choice of primary care givers, a choice of specialists as gatekeepers where appropriate; and a choice of referrals. When the network is not capable of providing a qualified provider, and when a consumer perceives a need to get specialized care outside the network, managed care enrollees should be able to get care at a reasonable out-of-pocket cost outside the network. If a plan maintains a high-quality team in the network, it is likely to find a low number of enrollees exercise the option to go outside the network for care.⁸

When considering this issue, it is important to keep in mind special considerations for different populations, such as enrollees in employment-based plans, Medicare and Medicaid. In the employer market, many employees are facing less choice of health plans, in particular of traditional indemnity plans. One positive development has been the growth of point-of-service plans which do provide some degree of choice of provider.

We believe that supporters of increased choice for Medicare have missed the important point -- that seniors care deeply about having the freedom to choose their doctor. We are concerned about the growth in Medicare HMOs, which are able to offer increased benefits largely because they are selecting a healthier population. We are concerned about proposals for so-called "choice" of plans such as Medical Savings Accounts, which could provide (in many cases uninformed) "choice" of deductibles as high as $6,000 and unlimited doctors' bills, no longer subject to limits on fees above the Medicare-approved rate. Similarly, the bill reported out by the Senate Finance Committee last week would eliminate balance billing restrictions in private fee-for-service plans. Restrictions on balance billing are one of Congress's success stories -- with a vary small percentage of doctors' charges now exceeding Medicare approved rates. We urge this Commission to do whatever you can on behalf of seniors to stop Congress from creating new problems for seniors and the disabled.

In the Medicaid program, reconciliation legislation before Congress that would severely limit the choices available to Medicaid beneficiaries. Many Medicaid beneficiaries could end up in HMO's that have few if any private pay patients, raising the prospects of cut-rate, low-quality health care for the poor -- "Medicaid mills." In addition, legislation reported out of House committees would repeal the current Medicaid managed care waiver process, which provides some quality and consumer protections.

3. Tradeoff: Choice and Cost

HMOs that are most successful at controlling cost are those that limit consumer choice most severely, e.g., through closed panels. Yet consumers value choice, and the rapid expansion of point-of-service plans is evidence of this.

The marketplace is changing rapidly. Policymakers need to study the interrelationship between degree of consumer choice, level of consumer satisfaction, prevalence of out-of-plan care, and quality, as they continue to improve the regulation of the nation's health care system.

 4. Importance of Choice to High-Risk Consumers

What about high-risk consumers -- people with chronic diseases (e.g., diabetes, emphysema, high blood pressure); people with disabilities (e.g., children with cerebral palsy)? What about acute illnesses that need specialized care (e.g., a rare cancer, in a child, requiring abdominal surgery)?

It is crucial that our health care system meet everyone's routine needs AND be capable of providing quality, consistent care when acute and chronic conditions exist. Within a health plan, people with chronic conditions should be able to have a specialist serve as gatekeeper where appropriate. A person with a chronic illness should not be forced to go to a primary care doctor for a referral, when their need for a specialist is well-defined and chronic. When a specialized procedure is needed, consumers should have the option of going outside the network if they believe the in-network providers are not appropriate. Parents should not have to go to court if they believe that the best doctor for their child's operation is out-of-network.

It is when consumers' health care needs are chronic, and when they are acute, yet serious, that freedom of choice of provider becomes most valuable, and most needed, by consumers.

5. Special Needs of Low-Income Consumers

Consumers Union is particularly concerned about low-income consumers, the segment of the population least likely to have choice of health plan and choice of doctor, and the segment that is most likely to face financial barriers that prevent them from having the ability, for example, to go out-of-network for care. The 1994 Commonwealth Fund survey found low-income families with private managed care coverage were vulnerable to having no choice other than a lower quality plan with little choice.⁹ This concern highlights the need for quality standards for all plans and some degree of affordable choice (e.g., an escape hatch) for all managed care enrollees.

We urge you to reject proposals before Congress that threaten to herd the Medicaid population into HMOs that serve only the poor. Specifically, we recommend against abandonment of the rule that requires HMOs to have a mix of enrollees -- the so-called 50/50 rule that requires 50 percent of enrollees to be private (not Medicare/Medicaid). We urge you to support strong consumer protection standards that will apply to the Medicaid program, including those embraced by Sen. Chafee recently in legislation. To the extent states continue to turn to managed care for the Medicaid population, Medicaid beneficiaries should at least have a choice from 2 or more alternative health plans.

 6. Choice and Risk Selection

One of the challenges for policymakers is how to reconcile the goal of increased consumer choice with the problems that flow from consumers' following their financial incentives. In other words, high-risk consumers are likely to choose different health plans than low-risk consumers. This selection issue is most readily apparent in the Medicare market, where Medicare has literally lost billions of dollars by expanding choice (Medicare HMOs), but failing to adjust payments to HMOs that reflect their selection of relatively healthy seniors. Risk adjustment techniques have failed to keep up with public policy.

Now Congress is on the verge of introducing even more "choice" into the Medicare market (medical savings accounts) that are predicted to fragment the risk market even more, appealing to the healthy, who will be given money to put in a tax-advantaged savings account. People left behind in the traditional Medicare market are likely to face reduced quality, when money that was previously spent on health care is drained to provide cash to the healthy. The proposal to convert Medicare into a program modeled after the Federal Employees Health Benefits Program (FEHBP) is also a risk, since, again, we do not yet know how to adequately adjust payments to health plans based on risk.

The lesson for policy-makers should be: don't pursue policies that split the population into different risk pools until you know how to adjust payments to health plans to adjust for different risks.

7. Need for Escape Hatch

Many people have no choice but to enroll in an HMO selected by their employer. Many Medicaid beneficiaries have no choice but a managed care plan, often selected by their state, or dictated by geography. Medicare beneficiaries are often lured into an HMO by promises of extra benefits, with insufficient explanation about limited choice of doctor. Proposals before Congress today could lock-seniors in to Medicare HMOs for a full year, in contrast to today's 30-day disenrollment policy.

We believe that the market trend in the direction of point-of-service plans for HMOs is a positive trend, and one that should be made available to all HMO enrollees when they seek the care of a specialist. As Consumer Reports found, HMO enrollees need an escape hatch, for the times -- hopefully out-of-the-ordinary -- when their HMO can not meet their needs. When the HMO network has inadequate resources, then consumers should not face costs beyond what would apply within the HMO. When going out-of-network is more of a choice for consumers, then extra out-of-pocket costs should be reasonable and should not present a financial barrier to care outside of the network.

We support the introduction of the point-of-service option for Medicare beneficiaries who choose an HMO. In addition, because quality standards, including appeal rights, are not yet fully in place for Medicare beneficiaries, the 30-day disenrollment period from Medicare HMOs must be retained to provide an escape hatch for seniors who enroll in HMOs and then find that the HMO is not meeting their needs. The 30-day disenrollment policy is the ultimate protection for consumers when quality of care may be inadequate. Seniors can exert pressure in the marketplace by voting with their feet. In addition, we believe that policymakers should encourage the relatively new point-of-service option for Medicare HMO enrollees, and should develop creative ways of communicating managed care choices that are available to seniors, so that they understand what is meant by the point-of-service option.

Consumers would welcome information about percent of HMO visits are out-of-network, because this information would provide guidance about the ability of the HMO network to serve the needs of enrollees.

8. Need for National Enforceable Health Care Quality Standards

We are pleased that this Commission will develop a Consumer Bill of Rights. I am attaching to this statement Consumers Union's Managed Care Principles. We strongly urge you as a Commission to make your mark on health care quality by putting your full energy into working for Congressional enactment as soon as possible of national, enforceable consumer protection standards that will benefit all consumers -- whether they are enrolled in an employment-based plan (including the self-insured plans), Medicaid, Medicare, or an individual policy. A key part of the consumer health care bill of rights should be limits on consumers' health care costs (paid through premiums, cost-sharing, other out-of-pocket costs, and taxes).

A "Consumer Bill of Rights" that exists on paper only will be worth only the paper it is printed on. Our seniors learned this lesson the hard way when nursing homes posted -- but did not honor -- a consumer bill of rights. The key to success will be enforcing quality standards; we can not rely on the good will of health plans to police themselves.

Conclusion

Unless Congress decides to revisit the critically important challenge of moving this country towards universal health coverage, we can expect current marketplace trends to continue: increased enrollment in managed care, reduced enrollment in traditional indemnity plans, and reduced employee choice of traditional indemnity plans. In order to help assure quality health care and consumer choice in this environment, Congress should take steps to:

• structure the market to facilitate well-informed choice (e.g., through standard benefits, standard, reliable comparative information in a consumer-friendly format);
  
• establish national, enforceable consumer protection standards (e.g., with the right to an independent review of any health plan decision to deny treatment; independent quality monitoring);
  
• provide all consumers with an escape hatch when managed care plans do not meet their needs (e.g., affordable point of service; 30-day disenrollment from Medicare HMO's);
  
• provide all consumers, including Medicaid beneficiaries, a choice of health plan;
  
• adjust risks so that choice does not fragment the market (e.g., Medicare "choice" plans; private market).

We urge this Commission to spur Congress on, without delay, to address these vitally important challenges.

Consumers Union's Managed Care Principles

Managed health care -- health maintenance organizations, preferred provider organizations, and provider service networks -- have become the dominant form of health care delivery in the United States. Managed care has grown because of its potential to cut health care premiums, provide patients with coordinated care, and offer consumer convenience such as reduced paperwork. Managed care systems replace traditional fee-for-service medicine's incentives to overtreat with strong incentives to undertreat. With this revolutionary change in financial incentives comes the needs to strengthen the regulatory structure which has not evolved to keep pace with the marketplace change, leaving the quality of our health care in jeopardy. Consumers Union believes that all managed care plans, regardless of the form they may take, should be required to meet minimum consumer protection requirements that ensure the delivery of quality health care to all enrollees. Many of these requirements could also be applied to a traditional, non-managed care setting, since the distinction between managed care and non-managed care has been blurred and even traditional fee-for-service care faces pressure to cut costs. The following principles set the framework for consumer protection. In addition to these principles which apply to plans and groups, Consumers Union believes that an independent consumer advocate program should be created to assist with and respond to consumer complaints at both an individual and systemic level.

Below are Consumers Union's Managed Care Principles:

Managed care plans or groups shall provide timely access to affordable and appropriate health care. Plans shall:

• meet solvency standards established by the state;
  
• provide emergency care, without prior authorization if a prudent layperson could reasonably believe that the ailment required immediate attention;
  
• eliminate financial barriers that impede access to affordable health care;
  
• provide an adequate number of primary care doctors, specialists, and hospitals services within a reasonable geographic area; and
  
• provide access to a comprehensive benefits package including all Food & Drug Administration approved drugs (at least generic versions), as deemed necessary by enrollee's physician.

Managed care plans or groups shall provide quality health care. Plans shall:

• establish internal quality-assurance programs including ways to measure clinical outcomes;
  
• base any standards for utilization of services on medically recognized standards by like providers;
  
• eliminate policies that limit a provider's duty to discuss with a patient all issues related to obtaining medical services including all treatment options; and
  
• disclose to patients any financial arrangements between physicians and the plan or group that would affect treatment decisions such as capitation rates.

Managed care plans or groups shall establish a grievance procedure that includes the right to an independent review of any plan decision that denies or limits care. Plans shall:

• institute procedures for written notification to consumers of all decisions to deny, delay, reduce, limit, or terminate care;
  
• establish and disseminate procedures for the timely review of grievances and appeals regarding benefits and services; and
  
• institute a grievance procedure including access to an independent review by a neutral third party, non-binding alternative dispute resolution program, and/or consideration by appropriate state and federal courts.

Managed care plans or groups shall provide a choice of qualified health care providers. Plans shall:

• ensure access to appropriate specialty care and permit the use of specialists as primary care providers when appropriate (e.g. pediatrician or OB-GYN,) and when warranted due to patient's disability, illness, or other health conditions; and
  
• permit enrollees, at least in the case of severe illness or injury to see providers outside the network for an additional fee.
  
  

Managed care plans or groups shall provide consumers with accurate, current, and user-friendly information about coverage and quality-of-care information. Plans shall:

• provide consumers with accurate information in all marketing materials;
  
• provide a clear description of limitations and restrictions of the plan or group:
  
• provide reliable information on quality of care based on standard measures, audited by an independent entity or collected by a neutral third party;
  
• provide information on plan structure and procedures, comparative information on credentials and qualifications of health care professionals, benefits, any limitations on benefits and use of specialists;
  
• provide information on cost-sharing requirements, payment methods, number and types of providers, prior authorization and utilization requirements, and grievance procedure; and
  
• provide information on consumer satisfaction survey results (e.g. waiting periods for office visits and scheduling visits) and consumer rights and responsibilities.
  

Managed care plans or groups shall not discriminate against any consumer. Plans shall:

• prohibit discrimination in marketing, enrollment, or the provision of services on the basis of health status, race, gender, age or other socioeconomic factors; and
  
• meet appropriate language and cultural needs of its enrollees.

Managed care plans or groups shall ensure that patient-specific information remains confidential. Plans shall:

• ensure that the confidentiality of medical records are preserved and patient-specific information is not released to employers or others without authorization.

2 - "How Good is Your Health Plan," Consumer Reports, August 1996.

3 - "Health Care in Crisis: Are HMOs the Answer?" Consumer Reports, August 1992.

4 - Wall Street Journal, June 18, 1997.

5 - Our other principles were universal coverage, fair financing, cost containment and accountability to the public.

6 - "The Clinton Health Care Act: What Will it Mean for Consumers," Consumers Union, January 1994.

7 - See Elizabeth W. Hoy, Elliott K. Wiches, & Rolfe A. Rorland, "A Guide to Facilitating Consumer Choice," Health Affairs, Winter 1996, pp. 9 - 30.

8 - One study found, for example, that consumers who have a point-of-service option receive their care within their managed care network 84 percent of the time. Mandatory Out-of-Network Coverage for HMO's" Cost Implications for HMOs, Ogden, D. et. al., Milliman & Robertson, Inc., March 1994, cited in The Managed Care Consumers' Bill of Rights, by Ruth Finkelstein, Cathy Hurwit and Richard Kirsch, The Public Policy and Education Fund of New York in Cooperation with the Citizens Fund, October, 1995.

9 - The survey found that low-income enrollees in managed care are less likely to have the option of a fee-for-service health plan than higher income managed care enrollees. Karen Davis et.al., "Choice Matters: Enrollees' Views of Their Health Plans," Health Affairs, Summer 1995. 

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