Both copayment requirements for doctors' visits and limitations on the number of visits applied frequently to mental health care outside the hospital. These copayments were often greater than those required for other non-hospital services; charges of $5 or greater per visit were found in one-fourth of the plans. In 7 percent of the plans, the amount of the copayment varied by the number of visits. For example, a subscriber might not be charged for the first 10 visits but was charged $10 for each subsequent visit.

HMO prescription drug plans often require a copayment per prescription, most commonly $1 or $2. However, as the following tabulation shows, coinsurance provisions also applied for 10 percent of the HMO plans (asterisk indicates under 0.5 percent):

Prescription drugs were the major category of HMO coverage for which coinsurance provisions applied. The insurer virtually always paid 80 percent of the charge, with the subscriber paying the balance. Other limitations shown above for 4 percent of the plans consisted mainly of annual deductibles of $50 or $100.

Fewer than 10 percent of the HMOS limited coverage through coinsurance features, yearly deductibles, or maximum dollar payments in each of the following benefit areas: extended care in a nursing facility; diagnostic X-ray and laboratory tests outside the hospital; mental health care; outpatient care; and vision care.

Coinsurance provisions, where found, were commonly at the 50-percent level for non-hospital mental health care and at the 80-percent level for in-hospital mental health care and for hospital outpatient services. The few coinsurance requirements for outpatient services usually were accompanied by a $50 or $100 yearly deductible and a ceiling on maximum dollar benefits. These limitations on coverage of outpatient services were generally in HMO plans which did not fully cover hospital room and board. Nine percent of the plans limited vision care by a specified maximum dollar benefit or by a scheduled dollar amount per examination or prescription for eyeglasses.

Employee premiums

Because benefits are more likely to be covered in full by health maintenance organizations, their premium charges may exceed those of traditional insurers. The Health Maintenance Organization Act does not require an employer offering a dual choice of health plans to contribute more toward HMO coverage than toward other health insurance. Consequently, when an HMO's premium exceeds that of a traditional insurance plan, an employee may be required to pay the additional cost of the HMO plan.

Although the BLS employee benefit surveys do not obtain data on employer expenditures, they do collect information on the extent of worker contributions toward the cost of premiums. The 1981 survey found that nearly three-fourths of all non-HMO plans were fully paid for by employers for employee coverage, and just over one-half were noncontributory for dependent coverage. In contrast, about one-third of the HMO plans were noncontributory for employee coverage, and onefourth for dependents (table 4).

Moreover, when employee contributions were required, they were higher, on the average, for HMO services. Monthly employee premiums in contributory HMO plans averaged $12.77 for employee coverage and $27.21 for dependent coverage. Corresponding figures for non-HMO plans were $7.21 and $18.96. A monthly

employee premium of $20 or more for individual coverage was found in 13 percent of the HMO plans and in 1 percent of other plans. Similarly, $30 or more for dependent coverage was required in more than one-fourth of the HMO plans and in one-tenth of the other plans. Consideration of employee premiums focuses on just one aspect of total health care costs borne by employ

ees. It ignores out-of-pocket employee expenses at the time services are rendered. The BLS survey, however, focuses on benefit provisions and not on usage or its full cost. As noted, full comparison of HMOS and traditional insurers must consider more than cost factors, including quality of care and intangibles such as doctor-patient relations, and the health of the insured.

'For a comprehensive discussion of HMOS, see Robert G. Shouldice and Katherine H. Shouldice, Medical Group Practice and Health Maintenance Organizations (Washington, Information Resources Press, 1978). For a briefer introduction, see A Student's Guide to Health Maintenance Organizations, DHEW Publication No. (HRA) 79-3 (U.S. Department of Health, Education, and Welfare, Public Health Service, 1978).

2A 1981 National HMO Census, covering 243 plans, found that only 15 percent of all participants were enrolled in individual practice association prepayment plans. National HMO Census 1981, DHHS Publication No. 82-50177 (U.S. Department of Health and Human Services, Public Health Service, 1982), p. 5.

Credit for the term goes to Dr. Paul M. Ellwood, Jr., president of InterStudy, a research institute on prepaid health plans.

* Margaret C. Klem and Margaret F. McKiever, Management and Union Health and Medical Programs, Public Health Service Publication 329 (U.S. Department of Health, Education, and Welfare, Public Health Service, 1953), pp. 3-5.

'For a more detailed history, see Herman M. Somers and Anne R. Somers, Doctors, Patients, and Health Insurance (Washington, The Brookings Institution, 1961), Chapter 17.

"The employer viewpoint is presented in Ruth H. Stack, HMOs from the Management Perspective (New York, AMACOM, 1979). Labor unions, at the national level, usually support HMOS but, because of possible requirements for employee contributions, local union officials at times have reacted negatively. The overall union viewpoint is in Bert Seidman, "HMOS and Health Care for All Americans," AFL-CIO American Federationist, June 1979, pp. 10–11.

'Employers must offer at least one group or staff HMO and at least one IPA if both are qualified and request inclusion in a health benefit program. Where employees are organized, the HMO offer must be made to the union; the employer's obligation ends if the union rejects the offer.

8

* National HMO Census 1981, pp. 1, 5.

'Employee Benefits in Medium and Large Firms, 1981, Bulletin 2140 (Bureau of Labor Statistics, 1982), p. 27. The BLS study may not be fully indicative of HMO penetration into employee health benefit plans. An analysis by the General Accounting Office of HMO contracts with employers of 25 workers or more found that the percentage of employees enrolled in the HMOS was considerably higher in small than in large firms. See Can Health Maintenance Organizations Be Successful?-An Analysis of 14 Federally Qualified "HMOS," HRD78-125 (U.S. General Accounting Office, June 30, 1978), pp. 48-49.

10

The surveys are conducted annually in 70 areas, but questions related to HMO participation were phased into the program over a 3-year period beginning in 1980. The surveys provide data on earnings in selected blue- and white-collar occupations common to a wide variety of industries. Data are also obtained on weekly work schedules and employee benefits, separately for nonsupervisory office work

12

This employment total excludes executive management, part-time, temporary, seasonal, and operating personnel in constant travel status (for example, airline pilots), who are outside the scope of the survey. The 1981 survey collected data on employee work schedules and developed information on the incidence and detailed characteristics of 11 private sector employee benefits paid for at least in part by the employer: paid lunch and rest periods; holidays, vacations, and personal and sick leave; accident and sickness, long-term disability, health, and life insurance; and private retirement pension plans. Data were also collected on the incidence of 17 other employee benefits, including stock, savings and thrift, and profit sharing plans. Survey findings of general interest are included in annual BLS bulletins (see, for example, Employee Benefits in Medium and Large Firms, 1981). More intensive treatment of individual topics-such as the present analysis-appears in Monthly Labor Review articles. Tables in the bulletins show the proportion of full-time workers participating in the individual benefit plans studied or covered by specific types of plan provisions. Unlike the simple counts of reported plans in this article, these proportions in the bulletin tables are computed by applying appropriate sample weights to the reports from the individual establishments in the survey. For detailed information on the background and conduct of the survey, see Robert Frumkin and William Wiatrowski, "Bureau of Labor Statistics takes a new look at employee benefits,” Monthly Labor Review, August 1982, pp. 41-45.

13

"A total of 365 HMO plans within individual establishments was included in the analysis.

14 Plans restricted to dental benefits were excluded.

"The Act defines "basic health services" to include: (1) physicians' services; (2) inpatient and outpatient hospital services; (3) emergency health services; (4) short-term outpatient mental health services; (5) medical treatment and referral services for the abuse of or addiction to alcohol and drugs; (6) diagnostic laboratory and diagnostic and therapeutic radiologic services; (7) home health services; and (8) pre- · ventive health services (including immunizations, well-child care from birth, periodic health evaluations for adults, voluntary family planning services, infertility services, and children's eye and ear examinations).

16 As indicated in footnote 14, such dental-only plans are excluded.

17 Vision care benefits limited to children are excluded.

representative sample of all health insurance plans; however, because they cover a substantial number of workers, both union and nonunion, they do offer insight into trends in major medical coverage during the 1974-81 period. Of the 166 plans studied, 147 included major medical provisions in 1974. Eleven plans added such coverage within the next 7 years, while one dropped it, resulting in the total of 157 plans with major medical benefits in 1981 (table 1).

Major medical insurance

Major medical coverage is a relatively recent concept, introduced in 1949 by the Liberty Mutual Insurance Co.5 Previously, health insurance plans usually consisted of separate coverages for hospital, surgical, and medical (doctors' charges) expenses. The emphasis in these "basic" plans was on "first-dollar" coverage; that is, an insured individual was not required to make an initial payment for care before insurance benefits were forthcoming. However, benefits generally were geared toward short-term care in a hospital with little, if any, coverage of expenses incurred elsewhere. In addition, basic plans typically contained internal limits on either eligible charges or duration of coverage for each type of expense or procedure. Benefits as a rule were inadequate to meet the costs of a chronic disability.

Major medical coverage has altered the focus of health insurance plans. Major medical plans-geared toward protection against the cost of catastrophic illness or injury— typically have maximum payment limits substantially higher than those of basic benefit plans. To hold down insurance premiums, major medical plans eliminate first-dollar coverage and call for cost-sharing by the employee through deductible and coinsurance provisions. The deductible is a specified amount that the insured individual must pay toward medical expenses before any charges are paid by the plan. Medical expenses in excess of the deductible are shared by

1Supplemental plans, as the name indicates, supplement basic plans. They cover expenses that exceed the limits specified by the basic plans and cover some expenses that are not covered by the basic plans.

2Comprehensive plans stand alone, without basic coverage, and cover a wide range of medical expenses in a single package. In a pure comprehensive plan, all benefits are subject to the deductible and coinsurance provisions. In a modified comprehensive plan, some expenses (most commonly hospital charges) are covered without deductible or coinsurance requirements.

3 Includes one plan which replaced major medical coverage with extensive basic coverage between 1974 and 1981.

NOTE: Because of rounding, sums of individual items may not equal totals.

Exhibit 1. Expenses typically covered by major medical plans

Hospital room and board

Hospital-miscellaneous services

Physicians' services-in hospital, office, or home
Surgery and anesthesia
Private-duty nursing

Mental health care Laboratory tests Diagnostic X-rays Drugs and medicines

Medical equipment—artificial limbs, crutches, braces

Rental of wheelchair or hospital bed Physiotherapy

Radiation therapy

Treatment in outpatient department of hospital Local professional ambulance service

the insured individual and the plan through a predetermined coinsurance formula; plans typically pay 80 percent of the covered charges while the insured pays the remaining 20 percent. Major medical plans, therefore, are consistent with traditional insurance goals: protection against infrequent and unpredictable large financial risks."

As indicated in exhibit 1, major medical plans cover in one policy a wide range of medical expenses, subject to a single overall set of payment limitations. (As described later in this article, separate internal limits on benefits may apply to a few categories of health care, such as outpatient mental health care.)

Non-accident related dental care, vision care, and care in a convalescent facility are more often covered through basic plans (table 2). Other expenses commonly excluded from major medical coverage pertain to eyeglasses, hearing aids, routine physical examinations, cosmetic surgery unless necessitated by an accident, employment-related injuries and injuries caused by war, and expenses due to an injury or illness which occurred immediately prior to joining a plan. (The "pre-existing condition" clause normally expires after a 3-month period during which no expenses are incurred because of the condition, or 1 year after joining the plan, whichever comes first.)

Major medical plans have caught on rapidly in the three decades of their existence. In 1951, 100,000 people in the United States-insured individuals and their covered dependents—were under major medical policies. By the end of 1960, the total topped 32 million, and by the end of 1980 it reached 154 million.9

Nevertheless, the growing popularity of major medical insurance has not ended interest in basic benefits. Both types of insurance commonly are found within the same health care package (table 1). Of the 166 plans studied, only nine provided coverage solely through basic benefits in 1981. (Provisions of these nine plans are examined at the end of

this article). The remaining 157 plans usually included major medical benefits as a supplement to basic benefits. Table 2 shows the frequency of basic and major medical coverages in the 166 plans by type of health care.

Supplemental and comprehensive plans

Major medical insurance is of two types-supplemental and comprehensive. The first type supplements basic plans that normally provide coverage for hospital, surgical, and in-hospital physicians' care up to specified dollar amounts or days of treatment. Supplemental plans customarily cover expenses that exceed the limits in these basic plans; in addition, they provide protection against types of expenses not covered by the basic benefits, such as for private duty nursing and prescription drugs. After exhaustion of basic benefits, an insured individual is responsible for charges up to the amount of the deductible; additional expenses are then paid by the supplemental major medical plan on a coinsurance basis.

The second type of major medical plan stands alone and covers a wide range of medical expenses in a single packagehence the term "comprehensive." In the "pure" form, all covered expenses are subject to deductible and coinsurance provisions. "Modified" forms, in contrast, cover some initial expenses-especially hospital-related-without deductible or coinsurance requirements. For example, a plan might cover in full the first $5,000 of hospital expenses and 80 percent of additional hospital charges. All other types of expenses, however, would not be covered until after the specified deductible was met, at which time the plan would begin to pay 80 percent.

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As shown in table 1, about three-fourths of the major medical plans in 1974 and 1981 were supplemental plans. 11 The 11 plans that initiated major medical protection between 1974 and 1981 all added supplemental coverage to existing basic plans. At the same time, a net increase of seven comprehensive plans occurred within existing major medical packages. The "pure" form constituted a minority of the comprehensive plans in both 1974 and 1981, but did increase its share of the total over the 7-year period.

Although supplemental plans outnumbered comprehensive plans in this study, the trend may be toward the latter. The Health Insurance Institute has reported that, during the first three months of 1981, three-fourths of the new group major medical policies issued by insurance carriers were comprehensive rather than supplemental. 12

Cost-sharing provisions

As noted earlier, major medical plans are characterized by deductible and coinsurance provisions. The former hold down insurance premiums by eliminating numerous small claims, while both cost-sharing features may indirectly curb insurance costs by discouraging overuse of benefit provisions.

Deductibles. All of the major medical plans in this study specified deductibles. These deductibles are normally a uniform dollar amount for insured individuals or a variable amount based on employees' earnings. Deductibles usually must be met once per calendar year by each covered individual, although some plans require that a separate deductible be met for each illness. In most plans, any expenses applied against the deductible in the last 3 months of a calendar year will also reduce the deductible for the next calendar year by that amount. Uniform flat dollar deductibles were predominant in the plans studied, with the most common deductible being $100 (table 3). Relatively few of the plans had adjusted their flat amounts between 1974 and 1981, despite the rapid increases in medical care costs.

Most plans limit the total number of deductibles that a family must pay in a year. No data are available from the 1974 study on family limits for deductibles, but 120 of the 157 major medical plans in 1981 had such a limit, usually two or three deductibles per family. Also, many plans require that only one deductible be met if two or more persons in a family incur expenses as a result of a single accident.

Coinsurance. With few exceptions, major medical plans paid 80 percent of expenses above the specified deductible in both years studied. Nevertheless, there was a tendency to liberalize these coinsurance provisions during the intervening period. Four plans paid less than 80 percent in 1974, but none did so in 1981; and, the number paying more than 80 percent increased from 5 in 1974 to 15 by 1981, most of which were comprehensive plans.

A single coinsurance provision usually applies to all types