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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.
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