QUESTION: I recently moved to California from Mississippi to take a new job. My new employer is offering a program I have never heard of an HMO. The company's personnel department says it is a much cheaper type of health care than the medical plan I'm accustomed to. Is it?--L. B.
ANSWER: Generally, consumers do save money overall when their medical needs are served by these prepaid health plans--which feature clinics where most ordinary medical services are available--instead of pay-as-you-go commercial health insurance plans. That is because the fixed fee paid to HMOs--short for health maintenance organizations--usually covers most medical expenses. So there are few out-of-pocket costs.
But whether you, too, would spend less with an HMO depends on the size and frequency of your medical bills. Statistics compiled by the National Consumers League show that in 1984, the average HMO monthly charge for a family was $189, a 10% increase over the previous year.
Commercial health insurance rates vary greatly but are often lower than those charged by an HMO. However, these plans almost always have an annual deductible of $100 to $250, and then they pay only 80% of the balance. Most also affix ceilings to the dollar amount that they will pay for various operations and limit the number of days in the hospital that they will cover. In addition, the rates of these so-called major medical insurance plans are growing at an average rate of 25% per year, the consumer group found--more than twice that of HMO rates.
The monthly HMO charge, which is called a premium, covers almost all medical expenses except prescriptions, long-term psychiatric treatment, expensive nursing home care, eyeglasses and contact lenses. Most HMOs also charge a small fee--$5 or $10 is typical--for office visits. Prescriptions, while costing extra, usually cost significantly less through an HMO than the going rate.
How can HMOs afford to charge everyone the same? They are big believers in outpatient surgery, for one thing. The National Consumers League found that HMO members are hospitalized about half as often as buyers of major medical insurance. HMOs can also regulate costs better because they require participants to use doctors and medical facilities that are part of the HMO family.
Therein lies the major drawback. You must choose a doctor and hospital from a list provided by the HMO or risk not being reimbursed. You can get around that requirement only if an HMO doctor refers you to outside specialists, or if you have a serious accident or other life-threatening emergency and are taken to a hospital not affiliated with an HMO, or if you are out of town and need urgent medical assistance.
Some consumers like HMOs for the convenience of having most medical services available at one location. But the restriction of not being able to visit any doctor of your choice is often cited by the millions of Americans who decide against participating in an HMO.
Many, citing the HMO emphasis on cost containment, also question the quality of care provided. HMOs often are criticized for putting economy ahead of patients' well-being and for shepherding patients through as quickly as possible. HMOs counter that there is no evidence showing that their treatment of patients is any less effective than that of non-HMO doctors.
Still, only 9% of privately insured families belong to HMOs, according to a 1984 survey by the Louis Harris & Associates polling firm.
The concept of prepaid health plans dates back to the early 1900s. California industrialist Henry J. Kaiser is credited with founding the first of the modern HMOs for construction workers building the Grand Coulee Dam in Washington state in 1933.
The popularity of HMOs really took off in 1973, when Congress passed the Health Maintenance Organization Act to encourage the development of HMOs and require companies with existing health plans to offer employees the choice of an HMO as well. That year, HMOs had 4 million members. By mid-1985, the number had risen to about 19 million.
Debra Whitefield cannot answer mail individually but will respond in this column to financial questions of general interest. Do not telephone. Write to Money Talk, Los Angeles Times, 780 Third Ave., Suite 3801, New York, N.Y. 10017.