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D A T A W A T C H 
M A N A G E D  C A R E
W E B  E X C L U S I V E   

10 November 2004  
  

Public Perceptions Of 
Cost Containment Strategies: 
Mixed Signals For Managed Care

Despite an overall lack of confidence in managed care,
Americans appear to be receptive to specific managed care practices.

By Claudia L. Schur, Marc L. Berk, and Jill M. Yegian

ABSTRACT:


With health care costs, and insurance premiums in particular, escalating rapidly, we may see the reintroduction of utilization management strategies associated with managed care, which seemed destined for oblivion only a short time ago. Results from a survey to assess Americans’ views of managed care cost containment strategies indicate mixed support: Despite an overall lack of confidence in managed care, Americans appear to be receptive to specific managed care practices. Those designing cost containment strategies must find a balance between imposing restrictions that moderate use and hold down costs and allowing consumers to retain some control over their own health care.

Health care costs are once again growing faster than the overall economy, a trend exacerbated by an economic downturn and soft labor markets.¹ Employment-related health insurance premiums rose 11.2 percent from 2003 to 2004, the fourth year of double-digit increases; wages rose only 2.2 percent during the same period.² The Centers for Medicare and Medicaid Services (CMS) recently announced a 17.5 percent increase in Medicare premiums, the largest increase in fifteen years.³ One driver of these cost increases is a loosening of the restrictions associated with managed care (such as primary care gatekeepers, utilization review, and closed formularies) in response to the managed care “backlash” of consumer reaction that peaked around 2000.⁴

Shifting costs to consumers has replaced utilization management as the main tactic by which health plans and employers attempt to slow premium increases. But since the distribution of health care costs is heavily skewed—with a small minority of consumers accounting for a large majority of the spending—this tactic has limited potential to hold down costs.⁵ Amid rising financial pressures and consumer frustration with the growing health care burden, some communities are beginning to see the reintroduction of utilization management strategies associated with managed care that seemed destined for oblivion not long ago.⁶

There are at least two reasons why consumers might be more responsive to utilization management tactics now than they were several years ago. First, economic conditions have changed. Health care spending as a percentage of gross domestic product (GDP) rose from slightly more than 13 percent to almost 15 percent between 2000 and 2002, after having remained relatively flat since 1993.⁷ Health insurance premiums and employee premium contributions showed a similar pattern—relatively flat in the mid-1990s but beginning to rise sharply starting around 2000.⁸ In 1994, when asked whether the top priority for health reform should be controlling costs, maintaining high quality, or providing coverage for all Americans, only 25 percent of respondents to a nationwide survey selected controlling costs. In 2002, however, during a period of rapidly rising costs, a markedly higher proportion—38 percent—did so.⁹ Second, based on consumers’ reactions to managed care, employers have begun to increase cost sharing while trying to maintain broader patient choice. Plan designs are becoming more complex, with cost sharing tied to choice of provider, site of service, or even type of service instead of applying uniformly to the benefit package.¹⁰ Employers appear to be more likely to offer a tightly managed product as one option rather than the only option; workers interested in paying lower premiums in exchange for a narrower network or more stringent preapproval requirements could then do so, while others could opt to pay more for a product with fewer restrictions. Consumers’ resistance to managed care was based at least in part on lack of choice; it is well established that consumers are more satisfied with their health plan when they choose it.¹¹

To better understand how receptive consumers might be to these strategies in the face of rising health care costs, the California HealthCare Foundation (CHCF) commissioned NORC at the University of Chicago to conduct a survey to assess Americans’ views of managed care cost containment strategies. This paper reports on the results from that survey.

Study Data And Methods

The survey field work was implemented by International Communications Research (ICR) as part of a larger survey that asks a core set of demographic questions and then adds additional questions from separate sponsors. The survey was conducted by telephone during 4–10 August 2004. Using a random-digit-dialing approach, surveyors interviewed 2,024 respondents nationally who were age eighteen and older. Respondents were asked a series of questions generally focused on their views of managed care restrictions.¹²

The ICR survey makes up to four attempts to call each number. The calls are made at different times and on both weekdays and weekends. The survey randomly selects a single respondent within each selected household. The methodology employed is similar to that used for political polling. The short field period does not allow the achievement of a response rate that would be comparable with those of government-sponsored surveys having field periods of several months. ICR weights the data to ensure a survey that is nationally representative with respect to key demographic variables. Estimates discussed below are weighted. The weighting process takes into account the disproportionate probabilities of household selection because of the number of separate telephone lines and the probability associated with the random selection of an individual household member. Following application of these weights, the sample is poststratified and balanced by key demographics such as age, sex, region, and education. Where noted, differences in the distribution of responses are statistically significant using a chi-square test at the 5 percent level.

Study Findings

Americans’ views of health care costs. Part of the context for moves by employers and health plans to shift costs to consumers or increase restrictive practices relates to the pressures of rising health care costs. Thus, it is informative to see the burden facing consumers and how they, in turn, are affected by these increases. Exhibit 1 presents three different aspects of the health care cost picture for Americans. First, most Americans do not spend a large amount on health care in a given year: Slightly more than half of respondents reported that they and their family spent less than $500 out of pocket on medical expenses (excluding health insurance premiums) in the prior twelve-month period. However, at the other extreme, 16 percent spent a considerable sum on health care—12 percent spent between $2,000 and $5,000, and 4 percent spent more than $5,000. For those with private health insurance, 24 percent indicated that what they paid in premiums had risen “a lot” in the past twelve months, and 29 percent reported an increase of “a little.” Perhaps most importantly, slightly more than two-thirds said that they are very or somewhat concerned about how much their family must pay for health care.

Perceptions about managed care cost containment strategies. Exhibit 2 shows how American adults perceive four different cost containment strategies commonly used by health plans: requiring a referral from one’s regular physician to see a specialist; requiring substitution of a similar but less costly drug for one prescribed by their physician (known as therapeutic substitution); requiring approval to have a new or costly medical procedure recommended by one’s doctor; and paying an income bonus to doctors who keep their patients’ health care costs under control. With respect to the first two strategies, a slight majority of adults thought that the practice was a very good or good idea. When asked about requiring approval for a new or costly procedure, the proportion in favor dropped to 43 percent, with a slight majority indicating they thought it was either a bad or a very bad idea. The response was even less enthusiastic with respect to paying doctors a bonus for controlling health care costs (Exhibit 2).

Perceptions of these cost containment strategies vary by personal characteristics, including health spending and attitudes (Exhibit 3). In terms of basic demographic characteristics, people in the youngest age group (ages 18–34) are most likely to think that these strategies are a very good or good idea. With respect to referrals and bonuses, men are more favorably inclined than women, and there are some significant differences by race/ethnicity. Income has little effect on the level of support in general, but it has a marked influence for those with fair or poor health status (results not shown). For people reporting that they are in fair or poor health, support is much higher across all four practices among those with annual incomes less than $25,000 per year than among those earning $75,000 or more.

The burden of health care spending has a strong impact on perceptions about these practices. People with higher health care expenses—either higher out-of-pocket costs or premiums that have risen more, or those who are most concerned about health care costs—are generally less likely to approve of the three directly restrictive measures. Although one might expect those facing the highest cost burden to be more receptive to managed care’s savings potential, it is likely that such people are also in worse health status and, therefore, higher users of health care services. People reporting that they are in fair or poor health are less likely to view the approaches that directly restrict use as good ideas, probably because they are concerned about their ability to obtain the health care they need.

In contrast to those reporting fair or poor health status, the uninsured—who are also vulnerable to high health care costs—are, in fact, more inclined to support three of the four measures than those with private or Medicaid coverage. From the vantage point of being uninsured, managed care may appear to have the potential to make care more affordable.

The trade-off between cost sharing and restrictions on use. Respondents were next asked whether they would be willing to accept a higher deductible or a higher premium in exchange for fewer restrictions on their use of health care services (Exhibit 4). Only 27 percent responded that they would be willing to do so. A slightly higher proportion (35 percent) indicated willingness to pay a higher premium for fewer restrictions. Although these proportions may seem quite low, it may be that because consumers are not strongly opposed to these strategies, their willingness to pay more in increased cost sharing to avoid these restrictions is not higher.¹³

What is more surprising is that those in fair or poor health—who are generally less supportive of the cost containment tactics—are among the least willing to pay more to avoid restrictive practices. However, when we control for income, there are significant differences between those who are less healthy and poor and those who are less healthy but better off financially. Of the former, 19 percent and 27 percent, respectively, are willing to accept a higher deductible or higher premium, compared with 48 percent and 52 percent of the latter (data not shown).

Finally, respondents were asked whether they thought managed care—with more restrictions on use of services—could help keep health care costs down without hurting people’s health. Only 30 percent of respondents answered affirmatively (results not shown). Forty percent of people ages 18–34 answered yes, compared with less than 30 percent among other age groups. People with lower incomes, blacks and Hispanics, and the uninsured all view managed care more favorably than do those with higher incomes, whites, and the insured. Also of interest, people who bear a smaller health cost burden—measured by out-of-pocket expenses, whether premiums had risen recently, or level of concern about the amount paid for health care—appear to be more favorably inclined toward managed care. These responses may highlight people’s concerns about the effect of managed care on health care quality; in fact, the literature does not support the view that managed care has a deleterious impact on health, although evidence is more mixed with respect to access and satisfaction.¹⁴ On the other hand, people’s reticence about managed care may indicate their lack of confidence in its ability to solve the cost crisis, rather than its effect on health. In fact, evidence from other surveys indicates that increasing numbers of Americans believe that managed care will not help contain costs but will harm quality.¹⁵

Discussion And Policy Implications

We find that one’s perspective on cost containment measures has much to do with one’s own health care experiences. When considering possible consumer responses to managed care practices, it may be instructive to think of three groups: those disenfranchised from the health care system; those with little health care experience; and those who are the biggest consumers of services. The first group—primarily the uninsured—is least able to get care on their own terms and is, therefore, most open to restrictive practices. Among those who could be considered most vulnerable—the uninsured, earning less than $25,000 per year, who are either black or Hispanic—76 percent said that requiring referrals was a very good or good idea (compared with 52 percent of all adults), and two-thirds agreed that requiring prior approval was a very good or good idea (compared with 43 percent overall).

The second group—relatively young and healthy people—are also well positioned for managed care: They do not seem to be concerned about cost and have likely not had a problem obtaining care because they tend to use little of it. Thus, restrictions on use are of little consequence. Also, younger consumers may be more familiar and comfortable with such tactics as referral to a specialist.

It is those reporting the worst health status—those for whom health care plays an intimate and necessary role in their everyday lives—who do not approve of strategies that might interfere in their ability to obtain health care services. Because they face the largest burden from health care expenses, one might conjecture that they would be receptive to cost containment measures: They are likely to have the most to gain if implementation of managed care tactics helped hold down their premiums or out-of-pocket costs. Yet, not coincidentally, because they are sicker, they are most worried about restricted access to health care. Ironically, while they are least receptive to restrictive managed care tactics, they are also the least willing to pay a higher deductible or premium to avoid them.

This seeming contradiction—those having the most to gain being the least supportive—is resolved when income and health status are considered jointly. Low-income people in fair or poor health are resistant to managed care, presumably because of their health status, but they are more likely to support the use of cost containment strategies because of their inability to pay for care. To illustrate, among people in fair or poor health, those earning less than $25,000 annually are, on average, 50 percent more likely than those earning $75,000 or more to support each of the managed care strategies we discuss here.

Despite an overall lack of confidence in managed care, Americans appear to be receptive to specific managed care practices. There is no blanket refusal to consider tactics that might limit use of medical care. In fact, only 12 percent and 15 percent of respondents, respectively, were favorably or unfavorably inclined toward all four practices, which indicates that support and objections are aimed at particular measures, not at managed care as a whole.

To accommodate these diverse perspectives, employers and insurers are beginning to offer multiple-option products that allow enrollees to select from a menu of design elements—less or more restrictive provider networks, lower or higher cost sharing at the point of service—and pay different premiums for the products they choose.¹⁶ Also emerging are “efficiency-based networks”—subsets of providers whose practice patterns demonstrate both high quality and low cost. A lower premium provides a financial incentive for enrollees to select the network, but the choice of a broader network is available for a higher premium.
In general, medical management tactics previously applied to the population in a one-size-fits-all approach are increasingly tailored to segments of the population—a light touch among the low-utilizing healthy population, programs encouraging use of appropriate care for those with chronic illnesses, and intensive case management for the sickest.¹⁷ Such tailoring may reduce resistance to even the most tightly managed products, at least among some groups.

Given the differences we see in how various population subgroups respond to managed care tactics, offering a variety of products with different associated costs may satisfy the largest number of consumers. Those who value choice can “buy” fewer restrictions, while others may be willing to accept more restrictive practices in exchange for paying less. This sorting of consumers into different benefit designs can be viewed as evidence of market forces at work with a diversity of products that are responsive to heterogeneity in consumers’ preferences and ability to pay. At the same time, it may lead to more risk selection or market segmentation in insurance markets, with low-income or less healthy groups channeled into more tightly managed products, and more limited pooling of risk between the sick and the healthy, which is the primary reason for insurance.

To the extent that new approaches to cost containment successfully balance restrictions that moderate use while still allowing consumers to retain some control, they may meet greater consumer acceptance. However, from a policy perspective, these approaches will be evaluated by whether the increasing product heterogeneity and associated market segmentation make it more difficult for the sickest Americans, particularly the low-income, to obtain affordable health insurance and to achieve appropriate access to health care.

This study is one of a series of household surveys designed for Health Affairs that NORC has conducted on health policy–related topics. Funding for this survey was provided by the California HealthCare Foundation (CHCF). The views presented are those of the authors and do not reflect the opinions of Health Affairs, CHCF, or NORC. The authors thank Sreelata Kintala of NORC for her programming support and research assistance.

NOTES

1. In 2002 health spending grew 5.7 percentage points faster than the overall economy, as measured by growth of the gross domestic product (GDP)—the total value of goods and services produced in the United States. The health care share of GDP increased to 14.1 percent in 2001 and 14.9 percent in 2002 after nearly a decade in the 13.1–13.4 percent range. See Centers for Medicare and Medicaid Services, “Highlights—National Health Expenditures, 2002,” 17 September 2004, cms.hhs.gov/statistics/nhe/historical/highlights.asp (6 October 2004).
2. J. Gabel et al., “Health Benefits in 2004: Four Years of Double-Digit Premium Increases Take Their Toll on Coverage,” Health Affairs 23, no. 5 (2004): 200–209.
3. C. Connolly, “Medicare Premiums to Rise by 17.5 Percent,” Washington Post, 7 September 2004.
4. See D.A. Draper and G. Claxton, “Managed Care Redux: Health Plans Shift Responsibilities to Consumers,” Issue Brief, Findings from HSC no. 79 (Washington: HSC, March 2004). Also, see B.C. Strunk, P.B. Ginsburg, and J.R. Gabel, “Tracking Health Care Costs,” Health Affairs, 26 September 2001,
content.healthaffairs.org/cgi/content/abstract/hlthaff.w1.39 (6 October 2004). These authors cite the strengthening of providers’ bargaining power vis-à-vis health plans in opening up provider networks as a major factor in cost increases.
5. M.L. Berk and A.C. Monheit, “The Concentration of Health Care Expenditures, Revisited,” Health Affairs 20, no. 2 (2001): 9–18; and M.L. Berk, A.C. Monheit, and M. Hagan, “How the U.S. Spends Its Health Care Dollar: 1929–1980,” Health Affairs 7, no. 4 (1988): 46–60.
6. G.P. Mays, G. Claxton, and J. White, “Managed Care Rebound? Recent Changes in Health Plans’ Cost Containment Strategies,” Health Affairs, 11 August 2004, content.healthaffairs.org/cgi/content/abstract/hlthaff.w4.427 (6 October 2004).
7. K. Levit et al., “Health Spending Rebound Continues in 2002,” Health Affairs 23, no. 1 (2004): 147–159.
8. J. Lundy, B. Finder, and G. Claxton, Trends and Indicators in the Changing Health Care Marketplace, 2004 Update, April 2004, www.kff.org/insurance/7031/index.cfm (6 October 2004).
9. Data were provided by the Roper Center for Public Opinion Research, University of Connecticut. Data for 1994 come from a survey by NBC News conducted by Blum and Weprin Associates, 5–8 June 1994, and are based on telephone interviews with a national sample of 1,501 adults. Data for 2002 come from a survey by the Democratic Leadership Council conducted by Schoen and Berland Associates, 12–15 July 2002, and are based on telephone interviews with a national sample of 800 adults who are likely voters.
10. S. Trude and J.M. Grossman, “Patient Cost-Sharing Innovations: Promises and Pitfalls,” Issue Brief, Finding from HSC no. 75 (Washington: HSC, January 2004); and Draper and Claxton, “Managed Care Redux.”
11. See T.C. Buchmueller, T. Gilmer, and K. Harris, “Health Plan Disenrollment in a Choice-Based Medicaid Managed Care Program” (Unpublished manuscript, June 2003, revised January 2004); A. Gawande et al., “Does Dissatisfaction with Health Plans Stem from Having No Choices?” Health Affairs 17, no. 5 (1998): 184–194; and C. Schur and M. Berk, “Choice of Health Plan: Implications for Access and Satisfaction,” Health Care Financing Review 20, no. 1 (1998): 29–43.
12. A copy of the questionnaire is available from Claudia Schur, schur-claudia{at}norc.org.
13. Other surveys have found a somewhat higher willingness to increase cost sharing in exchange for fewer restrictive practices related to use of services. It is difficult, however, to make direct comparisons because of different approaches to questioning (such as asking about different restrictions or different cost-sharing requirements) as well as different time periods. For example, the 2000 Community Tracking Survey household component found that 57 percent of respondents would be willing to accept a limited choice of physicians and hospitals in exchange for lower out-of-pocket costs. HSC, Annual Report: Navigating a Changing Health System, 2004, www.hschange.org/CONTENT/452/report1.html (6 October 2004). In a 1994 survey, about two-thirds of respondents said that they would mind not at all or a little if they had to accept certain restrictions in order to pay less for health care. C.L. Schur and E. Dorosh, “Attitudes toward Cost-Containment Features of Managed Care: Differences among Patient Subgroups,” American Journal of Managed Care 4, no. 10 (1998): 1385–1391.
14. In a review of peer-reviewed literature, Robert Miller and Hal Luft find that both health maintenance organization (HMO) and non-HMO plans provide roughly comparable quality of care, although HMO enrollees report worse results on many access measures and lower levels of satisfaction compared to non-HMO enrollees. R.H. Miller and H.S. Luft, “HMO Plan Performance Update: An Analysis of the Literature, 1997–2001,” Health Affairs 21, no. 4 (2002): 63–86.
15. In a series of surveys conducted by Harris Interactive between 1995 and 2000, the proportion of adults who said that managed care will harm the quality of medical care rose from 39 percent in 1995 to 51 percent in 2000, and the proportion who said that managed care would help contain health care costs fell from 59 percent to 34 percent in that same period. See Harris Interactive, “While Managed Care Is Still Unpopular, Hostility Has Declined,” Health Care News, 21 October 2002, www.harrisinteractive.com/news/newsletters/healthnews/HI_HealthCareNews2002Vol2_Iss20.pdf (28 October 2004).
16. Many of these approaches are discussed in Trude and Grossman, “Patient Cost-Sharing Innovations”; and Draper and Claxton, “Managed Care Redux.”See also J.C. Robinson, “Reinvention of Health Insurance in the Consumer Era,” Journal of the American Medical Association 291, no. 5 (2004): 1880–1886.
17. J.C. Robinson and J.M. Yegian, “Medical Management after Managed Care,” Health Affairs, 19 May 2004, content.healthaffairs.org/cgi/content/abstract/hlthaff.w4.269 (6 October 2004).

Claudia Schur (schur-claudia{at}norc.org) is a principal research scientist at NORC at the University of Chicago in Bethesda, Maryland; Marc Berk is vice president and senior fellow there. Jill Yegian is director of the Health Insurance Program at the California HealthCare Foundation in Oakland.

DOI: 10.1377/hlthaff.var.516
©2004 Project HOPE–The People-to-People Health Foundation, Inc.