Public Release: 

UNC-CH Study Shows State Protects HMO Clients Poorly

University of North Carolina at Chapel Hill

CHAPEL HILL, N.C. -- North Carolina fails to protect the interests of state residents enrolled in health maintenance organizations nearly as well as it should, chiefly because the organizations have grown so fast that laws and regulations have not kept up, according to a new University of North Carolina at Chapel Hill study.

The study, conducted UNC-CH's Cecil G. Sheps Center for Health Services Research in association with the N.C. Institute of Medicine, included an HMO “report card” sprinkled with 13 letter grades ranging from two “A”s to two “D-minuses.” Overall, North Carolina's HMO consumer protection received a “C-minus” when compared with other states and industry standards.

“North Carolina has experienced an explosion in the growth of HMOs and managed-care companies,” said Pam C. Silberman, a lawyer who is research associate at the Sheps Center and a member of the institute. “Between June 1994 and November 1996, the number of licensed full-service HMOs skyrocketed from 10 to 23, with several HMO license applications pending review.”

HMO enrollment here grew steadily in the early 1990s, with annual increases of between 50,000 and 100,000 people, Silberman said. By the end of 1996, 954,967 people were enrolled in full-service HMOs or point-of-service plans across the state.

“In general, we found that the North Carolina Department of Insurance does a relatively good job enforcing current state HMO laws,” she said. “However, North Carolina lacks an adequate array of laws to ensure that consumers are fully protected.”

Silberman directed the study of state oversight of HMOs in partnership with Dr. Thomas C. Ricketts, deputy director for health policy analysis at the center. The researchers closely analyzed laws governing HMOs in North Carolina and looked specifically at the state's six largest HMOs.

“Compared to other states or model acts proposed by the National Association of Insurance Commissioners, North Carolina has less extensive consumer protections in access standards, quality assurance systems, complaint and grievance procedures, data collection and information disclosed to the public, provider protections and consumer participation mechanisms.”

The state earned its top marks for both its oversight of HMO premium rates and its financial solvency requirements, she said. It received “D-minuses” for both how much consumers participate in HMO governance and how consumers can get information about HMOs.

“Information available to consumers about competing plans is relatively sparse,” she said. “Consumers can obtain financial information about operation of the plans, but little information about satisfaction, adequacy of carriers' processes for delivering care or health-care outcomes.”

North Carolina does not require HMO plans to disclose information about financial risk-sharing arrangements, drugs that will be paid for, treatment of specific conditions, coverage of experimental or investigational procedures or clinical criteria used to review the need for certain treatments or services.

“This information is especially useful for individuals with special health-care needs who need to choose from competing health plans,” Silberman said. “Now, for example, lots of plans say they will cover services if they consider the services medically necessary, but they never explain the criteria they use in deciding what's necessary. As a result, an individual with a specific health condition may not know if the services needed to treat that condition will be covered before enrolling.”

Certificates of coverage -- the handbooks for enrollees -- which should explain covered benefits and exclusions sometimes were incomplete and often confusing, she said. Plans used technical language, which made some descriptions of covered or excluded services unintelligible. Likewise, appeals mechanisms were not uniform, and several HMOs failed to provide adequate due process protections.

The report, released by the Institute of Medicine, included many recommendations. Among them were that N.C. laws be changed to:

  • enhance accessibility to services.

  • ensure that written materials for consumers are complete and understandable.

  • track problems associated with HMOs over time.

  • make data comparing selected aspects of competing health plans available to consumers.

  • improve the due process requirement.

  • give the N.C. Department of Insurance broader power to ensure quality of services.

The Robert Wood Johnson Foundation of Princeton, N.J. supported the study with a grant.

Silberman is former deputy director of the N.C. Health Planning Commission and former project director of the N.C. Health Access Coalition.

By the end of 1995, nearly three-quarters of the insured population of the United States received medical care from some type of managed care organization.

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