Do HMO Plans Reduce Health Care Expenditure in the Private Sector?

Abstract

The cost containment performance of health maintenance organization (HMO) plans relative to non-HMOs is examined using data from the 2000 Medical Expenditure Panel Survey. When various compounding factors are controlled for, among the privately insured, nonelderly population, HMO enrollment is found to contain neither total health care spending nor total insurance payment, though it reduces total out-of-pocket expenditure. We further find that this result is not attributed to selectivity in health plan choice due to health risk. The favorable cost sharing for enrollees and the distinct reimbursement schemes in HMO plans seem to account for no significant overall cost saving.