Considered the birthplace of the health maintenance organization (HMO), California led the nation’s adoption of HMOs in the 1970s and ’80s. The HMO vision of care, focused on prevention and aligning financial incentives with wellness, transformed the health insurance landscape and launched the managed care era. The HMO model is still widespread in commercial coverage (group and individual purchasers) and more recently has served as a blueprint for public managed care. Over the past dozen years, however, California’s commercial HMO enrollment has declined.
HMOs Remain Strong in California, but for How Long?
Among those in California who receive coverage through their work, or buy it individually, HMO plans are the most common type of coverage. Almost 10 million Californians are currently covered through these plans.
As of 2015 (the most recent year for which data are available), HMO enrollees made up 47% of the total commercial market (including administrative services only [ASO] plans), but this percentage grows to 69% when considering only fully insured commercial enrollees.
Shrinking Commercial HMO Market
Private sector (“commercial”) HMO enrollment fell by over 2 million enrollees (18%), dropping from 11.9 million in 2004 to 9.8 million in 2015.
Workers’ Insurance Choices Drive Decline
The decline is primarily driven by HMO fall off in employer sponsored (group) health insurance coverage. After implementation of the ACA, growth in the individual market drove the 2015 uptick in HMO enrollment. It is uncertain whether fewer employees had HMO coverage offered to them or whether workers simply did not choose the HMO option.
Kaiser vs. Non-Kaiser Trends
But overall rates of enrollment mask a bigger trend: the loss of HMO patients from integrated medical care groups that are not part of the Kaiser system. Breaking down the commercial HMO enrollment into Kaiser and non-Kaiser helps explain the dynamic. Although non-Kaiser HMOs began the period with more commercial enrollment than Kaiser, by the end of the period, the non-Kaiser enrollment was much smaller.
Kaiser’s commercial HMO enrollment grew by half a million (10%) over this period, while non-Kaiser HMOs shrank by 2.7 million (-42%).
Group HMO vs. Individual HMO Coverage
Between 2004 and 2013, the declines in non-Kaiser HMO enrollment were driven primarily by falling enrollment in group coverage. After 2013, with the launch of the ACA, non-Kaiser HMO enrollment increased, which temporarily stalled the fall-off.
The Growth Is in Public Sector Managed Care Plans
Enrollment has shifted dramatically from commercial plans to public sector programs. Overall, health plans regulated by the Department of Managed Health Care (DMHC) during this period saw an increase in enrollment of 17%. All of this growth was attributable to public sector programs. In 2004, commercial enrollment represented about three-quarters of the commercial and public full-service health insurance enrollment under DMHC regulation. By 2015, it fell to about half of DMHC’s full-service health insurance enrollment (12.7 of the 25.2 million).
The pattern of public sector program growth is especially evident when looking at more recent data from both insurance regulators: DMHC and the California Department of Insurance.
In the face of stable, or declining, private sector commercial coverage, HMO growth is currently concentrated in the public sector. Medi-Cal and Medicare managed care enrollment, at 12.6 million enrollees, is on a path to overtake commercial enrollment. This change is being embraced as more and more insurers increase their participation in public sector programs.