Despite anecdotal information suggesting that PPO products are gaining favor over HMO products, intense media scrutiny of the managed care industry, and passage of numerous managed care reform laws during 1999, Cattaneo & Stroud, Inc.'s Year 2000 HMO Survey reveals more Californians than ever chose HMOs for their health plan coverage in 2000. However, for the first time in the four-year history of the survey, commercial enrollment in California HMOs grew at a slower rate than did overall population growth resulting in a slightly smaller percent of the commercial population being covered by HMOs.

KEY FINDINGS OF THE YEAR 2000
CATTANEO & STROUD HMO SURVEY

• One half of Californians are enrolled in HMOs.
• All HMO product segments experienced a gain in enrollees from 1999 to 2000.
• However, the percent of Californians with commercial coverage enrolled in HMOs declined from 1999 to 2000.
• HMO enrollment remains highly concentrated within a handful of health plans.
• The HMO model of coverage is increasingly becoming an urban model of coverage.
• Nine counties constitute three quarters of statewide HMO enrollment

THE CATTANEO & STROUD SURVEY

For the last four years, Cattaneo & Stroud, Inc. (C & S) has surveyed HMOs active in California and analyzed enrollment by county and line of business (commercial, Medicare and Medi-Cal). Active plans include plans with a Knox-Keene license, Department of Health Services Medi-Cal plans and HCFA Medicare plans. Fifty-two plans were included in this year's survey, with plan data from March 2000. As far as we know, the C & S survey is the only source of data on county-specific enrollment in California for all types of prepaid commercial, Medi-Cal and Medicare plans.

Although HMOs in California are required to report enrollment to state regulators, they do not have to detail enrollment by county. The aggregated data are not helpful for understanding local market dynamics. C & S has gained the cooperation of HMOs to receive enrollment figures by county and product line, and this information is now posted on our website.

SURVEY FINDINGS

• Californian's Enrollment in HMOs Continues to Rise with 17.3 Million Residents Now Covered.

• One Half of Californians are Enrolled in HMOs.

- With California's uninsured population estimated at as high as 20% of the total population, an even larger share of persons with HMO coverage belong to HMOs.

• All HMO Product Segments Experienced a Gain in Enrollees from 1999 to 2000.

• Only In The Commercial Segment Did Growth in Enrollment Not Keep Pace with Population Growth.

  - Between 1999 and 2000, the commercially eligible population increased by 1.9%, while the commercial population enrolled in HMOs increased by only 1.5%.

• The year 2000 marks the first time in the four-year history of the C & S HMO Survey that HMO enrollee growth in the commercial segment did not exceed the rate of population growth.
• Twenty-seven plans served the commercial population in 2000, as compared to thirty plans in 1999.

  - Within the Medicare business segment, the eligible population increased by 0.7% while those enrolled in HMOs increased by 1.5%.

• In both 1999 and 2000, twenty-two plans served the California population.
• The Medicare enrollment figures grew although Prudential and United-Healthcare terminated their Medicare plans in January 2000 along with other plans withdrawing from select counties.

  - The Medi-Cal population experienced an overall growth of 1.3%, with an HMO enrollment growth of 3.5%.

• In 2000, thirty-six plans enrolled the Medi-Cal population, as compared to thirty-eight plans in 1999.
• Growth in the Medi-Cal HMO population occurred largely in Monterey, Riverside, San Bernardino and Tulare counties.

• HMO Enrollment Remains Highly Concentrated Within a Handful of Health Plans.

 - Overall, five plans account for 74% of California's HMO enrollment: Kaiser, PacifiCare/FHP, Blue Cross/CaliforniaCare, HealthNet/Foundation and Blue Shield.

 - Amongst these large plans, Kaiser, Blue Cross/CaliforniaCare and Health Net/Foundation experienced enrollment growth between 1999 and 2000.

 - These same five plans control 80% of the commercial HMO enrollment and 87% of Medicare HMO enrollment.

 - Kaiser enjoys the highest market position statewide in the commercial and Medicare business segments, while Blue Cross/ CaliforniaCare has the largest share of Medi-Cal enrollees.

The HMO Model of Coverage is Increasingly Becoming an Urban Model of Coverage.

 - While overall enrollment in HMOs grew between 1999 and 2000, growth rates varied significantly between populated and less populated areas.

• Thirty-three counties experienced an overall loss in HMO enrollment, while the twenty-five remaining counties recorded an increase in HMO enrollees.
• Across all business segments, more counties experienced losses in enrollment as compared to enrollment gains.

Given the State's Population Concentration in a Small Number of Counties and Higher Rates of Enrollment Growth in The Urban Markets, More Than Two-Thirds of Statewide HMO Enrollees Reside Within Nine Counties.

 - Within these nine counties, HMO members represent a large share of the population.

OBSERVATIONS AND DISCUSSION

The C & S HMO Survey can be used for a variety of planning, marketing, and managed care contracting strategy and decision-making processes. The survey also raises some interesting questions about the future of managed care.

• Does the slowing in the enrollment growth in the commercial HMO market segment indicate an increasing preference for less restrictive plan options or saturation giving the size of the uninsured population?
• Will the federal government accede to HMO demands for higher payments for Medicare risk rather than lose more participation?
• How will struggling medical groups and hospitals adapt to changes in Medicare participation by HMOs?
• How will the loss of managed care products in less densely populated markets affect the strategies developed by health care providers with businesses in both urban and less densely populated markets?
• How will employers, as purchasers, respond to the demands of health plans and providers for higher premiums?

C & S clients have come to rely on this information for strategic and tactical planning. The survey results have been used to:

• Anticipate which products are growing in a market.
• Track the maturity of market developments and, in conjunction with other market data, forecast the impact on use rates.
• Test individual HMO prospects, especially when used in conjunction with other surveys of patient satisfaction.
• Model hospital and medical group contracting strategies for specific HMOs.

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