Bulletin No. 97-04

In the matter of Enrollee incentives and organizations licensed under Part 210 of the Michigan Public Health Code Issued and entered on March 10, 1997 by D. Joseph Olson Commissioner of Insurance

INFORMATIONAL STATEMENT ISSUED PURSUANT TO ACT 306 OF THE PUBLIC ACTS OF 1969 AS AMENDED

BACKGROUND

Part 210 of the Michigan Public Health Code, also known as Michigan's HMO Act, authorizes the Insurance Commissioner and the director of the Community Health Department to regulate Health Maintenance Organizations (HMOs) and Alternative Financing and Delivery Systems (AFDS). (MCL 333.21023(2) &(3)). The Insurance Commissioner is charged with regulating the business and financial aspects of HMOs and AFDS. The Community Health Department is charged with regulating their health delivery aspects.

The Insurance Commissioner and the Department of Community Health have recently received several inquiries as to whether the prohibitions in the HMO Act against the payment of cash or delivery of material benefits to enrollees, other than health maintenance services, proscribe the use of incentives to encourage enrollees to use preventive health services. We have also received inquiries about the use of incentives to encourage prospective enrollees to join a particular health plan. This informational statement clarifies how the applicable law cited below affects the actions of prepaid health plans licensed under Michigan's HMO Act.

INTERPRETIVE STATEMENT

With the growth in market penetration by HMOs, competition among HMOs for members has increased, and HMOs have come under increasing market pressure to encourage potential enrollees to choose their plan by the offer of incentives other than just the services of the HMO. Also, the expanded use of quality indicators, such as certain HEDIS measures, based on the use and outcomes of preventive health services, has encouraged HMOs to provide incentives to their members to make use of such services.

Section 21061(2) clearly prohibits an HMO or alternative financing and delivery system (AFDS) from advertising or otherwise offering enrollees or potential enrollees "a material benefit or other thing of value" other than the services of the organization to induce someone to enroll or re-enroll. Section 21061(2) allows HMOs and AFDS to distribute promotional materials generally but prohibits distribution only to those who express an interest in signing or who actually sign an enrollment form. Promotional materials, such as bookmarks, key chains, refrigerator magnets, pens or pencils, etc., that have a nominal cost and are designed to benefit the HMO or AFDS by increasing its name recognition are clearly not material benefits to some potential enrollees or re enrollees.

Organizations like the YMCA, health clubs, and distributors of child safety seats sometimes make their products or services available to HMO or AFDS enrollees at a reduced price. The price reduction is not subsidized by the HMO or AFDS and the YMCA, health club, or distributor of child safety seats deals directly with the enrollees, rather than with the HMO or AFDS. Section 21061(2) does not prohibit such arrangements as long as they are equally available to all an HMO's enrollees.

By statutory definition, an HMO or AFDS is an entity that delivers health care services to its subscribers under the terms of contracts between the HMO or AFDS and subscribers or groups of subscribers. Various sections of the HMO Act describe the health care services that an HMO must include in its contracts. Section 21053 allows an HMO or AFDS to include in its contracts additional health maintenance services or any other related health care service or treatment not required by the HMO Act.

Consequently, if an HMO or AFDS wishes to offer a benefit to its members, it must include that benefit in its HMO contracts. The benefit must be a health maintenance service or related health care service or treatment in order for the HMO to legally offer it. All HMOs must, by law, include preventive health care services in their HMO contracts and some HMOs choose to offer additional "wellness" benefits, such as paying for memberships at fitness centers. The HMO Act permits this only if the wellness benefit is included as part of the HMO's contracts with its subscribers. The HMO Act permits an HMO or AFDS to pay for enrollees' health club memberships, car seats, etc. but only if such benefits are made part of its approved subscriber contracts.

The issue of incentives or inducements to influence how an HMO enrollee uses health maintenance services is governed by other sections of the HMO Act. Section 21053 allows an HMO or AFDS to have subscriber contracts that include incentives intended to control utilization of services in the form of nominal co-payments. These co-payments are limited to 50% of the HMO or AFDS costs for a service. Section 21077 prohibits a health maintenance contract from providing for payment of cash or other material benefit to enrollees, except in the case of medical emergencies and under prudent purchaser (point of service) contracts. Section 21077 prohibits an HMO or AFDS from paying enrollees any amount of cash, however small, except as reimbursement for out of area or out of panel services received under a point of service contract. Consequently, an HMO or AFDS cannot use any amount of cash or its equivalent (checks, savings bonds, etc.) as an incentive to influence an enrollees use of benefits, or to influence an enrollee to select a particular HMO.

Section 21077 does not prohibit HMO and AFDS contracts from providing nominal incentives, other than cash or its equivalents, to encourage utilization of preventive services such as immunizations, well-baby care, asthma prevention regimens, etc. To be consistent with Section 21077 and Section 21053, incentives should be directly related to the benefit into which they are incorporated. For example, a well-baby care benefit that provides for the enrollees to receive a nominal amount of diapers or other infant care products each time a well-baby appointment is kept would comply with Section 21077 and Section 21053. A well-baby benefit that paid an enrollee $5 or entered the enrollee in a drawing for a year's worth of free movie passes for each kept appointment would not be consistent with Section 21077 and Section 21053.

Questions concerning this statement may be directed to:

Ms. Mary K. Rosenthal
Michigan Insurance Bureau
P.O. Box 30220
Lansing, MI 48909
(517) 335-2059

D. Joseph Olson
Commissioner of Insurance