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HMOs Come Out on Top in Efficiency

Cheryl A. Thompson

Health maintenance organizations (HMOs) on average manage employers' costs for benefits more efficiently than other forms of managed care and fee-for-service plans, a recent study found.

The study, by consulting firm Towers Perrin, reported that employers' costs for prescription drugs in 1999 increased by 16 percent, making the pharmacy benefit the fastest growing part of health insurance programs for active employees and retirees. 

According to the "1999 Towers Perrin Health Plan Performance Benchmarking Study," released in December, most of the 60 large employers that participated are trying to manage their pharmacy-related expenses. Among the strategies are: 

  • Carving out the pharmacy benefit,  
  • Setting a fixed dollar figure for copayments, and  
  • Placing a limit on certain types of prescriptions.

Few of the companies have increased beneficiaries' copayments, the study reported. Detailed information was not collected from all participating companies, however. 

Compared with the average fee-for-service plan, HMOs managed benefits 24 percent to 43 percent more efficiently. Although not as cost-efficient as HMOs, point-of-service plans and preferred provider organizations managed health benefits 6 percent to 33 percent more efficiently than the average fee-for-service plan. 

According to Towers Perrin, employers did not keep all the savings achieved from favoring HMOs over fee-for-service plans. Instead, employers shared some of the savings with employees through "richer plan designs." 

The health programs sponsored by the study participants covered 1.5 million employees.