In the last month, managed care plans nationwide have moved to cancel or transfer coverage for more than a million patients. Last week, for instance, the nation's second-largest health insurer, UnitedHealth Group, announced it will sell to Blue Shield the policies of 225,000 of its least profitable California customers. Blue Shield would be able to increase fees or reduce coverage for these patients, something that would be legally tougher for UnitedHealth to do.
Transfers of what health insurers refer to as "covered lives" are on the upswing because companies are seeking to divest themselves of expensive patients to offset health care costs rising well ahead of inflation. Part of the impetus is new state mandates requiring them to provide specific benefits. For example, the nation's largest health insurer, Aetna Inc., was zinged Tuesday by Wall Street after announcing that second-quarter profits will be well below expectations; the company blamed new services mandated by various states.
Consumer advocates are urging President Clinton to rein in some of the terminations and transfers by requiring Medicare HMOs to serve all markets they are currently serving. Clinton, however, is unlikely to touch the issue out of concern he would be accused of meddling in the free market. Congress is just as unlikely to provide leadership, which leaves it up to state regulators.
Daniel Zingale, director of California's newly created Department of Managed Care, does not have the authority to bar health plans from entering or exiting markets because of perceived profitability. However, Zingale can impose conditions. He should at least require UnitedHealth to promise that the deal won't unduly disrupt patient care--for instance, forcing women in late pregnancy to switch doctors. More broadly, Zingale should use his authority to ensure that HMOs are not promising benefits that they know they can't cost-effectively deliver.
Some consumer advocates say that United's sale to Blue Shield is an example of bait-and-switch, that companies woo patients with promises of good coverage, skim off the low-cost patients, then sell the high-cost ones--the chronically ill, for instance--to a company not bound by the original generous coverage terms. HMO sales practices are also the subject of a class-action lawsuit in California, and the courts have precious little experience in dealing with such issues. Companies seeking to thwart such lawsuits as well as patients who expect a right to stability therefore have an interest in vigorous oversight by the Department of Managed Care.
California's previous managed care regulator, the Department of Corporations, proved unable to monitor basic HMO economics. California's new regulators must not repeat the failure. Assessing the fiscal health and care-providing ability of hugely complicated HMO companies is no easy feat, but it's the only way to protect patients and preserve the credibility of managed care.