Is There a Relationship between HMO Quality of Care and Financial Performance? Evidence from Texas HMOs

Abstract

The profits earned by health insurance companies have been under intense scrutiny by policymakers and the general public. However, attempts to reduce insurance company profits could affect the quality of care that they provide to their enrollees. This study investigates whether there is a relationship between the profitability of an HMO and the quality of care that its enrollees receive. The sample is comprised of health maintenance organizations in Texas from 2000 to 2008. Quality of care is proxied by HEDIS compliance rates for selected child and female health measures, while profits are measured both on a dollar and percentage basis. Annual data are used that are disaggregated by market area. The results suggest that there is a statistically significant relationship between profits and some measures of quality. Specifically, the child health measures used here are positively related to profits, in that increases (decreases) in profits are associated with increases (decreases) in quality. By contrast, there is not a statistically significant relationship between the available female health measures and profits. Further, for the child health measures, instrumental variable models that attempt to address to the potential endogeneity of quality and profits are consistent with the possibility that changes in profits have a causal effect on quality of care.