Health Affairs, 23, no. 2 (2004): 28 doi: 10.1377/hlthaff.23.2.28 © 2004 by Project HOPE	New Online   Senate Health Reform Bill   Rewarding Providers   Public Option Policy Brief   Health Reform & Abortion   Delivery System Reform

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Managed Care

PROLOGUE

The Managed Care Evolution

Georgetown University law scholar Gregg Bloche and Harvard University health policy expert David Studdert kick off the history by describing key players in the eventual downfall of the HMO: trial lawyers. A combination of class-action, malpractice, and employee-benefit lawsuits peppered the industry throughout the 1990s, eventually eroding the legal shield HMOs claimed under the Employee Retirement Income Security Act (ERISA). Yet it was commercial, not legal, concerns that moved HMOs away from the objectionable practices, write Bloche and Studdert. While the lawsuits eventually broke down many of HMOs’ legal protections, plans often changed their practices to quell executives’ and investors’ concerns about legal risks, along with consumers’ anxieties about their coverage long before any court decisions came down. "Markets are more agile than law," they conclude.

Next, Jamie Robinson, a health policy scholar at the University of California, Berkeley, writes of the fall of Aetna, "the poster child for the aspirations and failures of managed care." A dinosaur of health insurance in the early 1990s with its reliance on indemnity products, Aetna moved boldly into managed care with its merger with U.S. Healthcare in 1996. In a climate that valued growth and economies of scale, it was a good business decision. By the time the firm’s enrollment peaked in 1999, however, Aetna once was again a dinosaur—a one-product HMO in a market demanding more choice. With the installation of new leadership, the company began focusing on profitability rather than market share. More products and a division of business lines by the number of enrollees in a given account have positioned Aetna as a "solutions" firm, "not in love with any product," Robinson writes. But he warns that the new business strategy will lead to greater segmentation of insurance markets and an unraveling of the broader social insurance net.

Finally, Robert Hurley of Virginia Commonwealth University, Bradley Strunk of the Center for Studying Health System Change, and Justin White of Mathematica Policy Research document the popularity of preferred provider organizations. PPOs are popular, they write, because they offer more choice than HMOs for enrollees, and yet they appear to also offer employers a suitable framework under which they can ask employees to pay more to keep the benefits they have.

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