Managed Care Plans

Managed-care-plansManaged care plans are health insurance plans that allow the insurer to influence the type of care provided to patients. Managed care plans differ from traditional indemnity insurance plans. In a traditional indemnity plan, the insurer gives the patient money for at least part of the cost of care. But the plan does little or nothing to influence the amount, price, quality, or type of care.

Today, most health insurance plans are managed care plans of some type. Such plans have been adopted throughout the world as a way of controlling medical costs. Many private insurance companies have adopted managed care methods. So have numerous governments in countries with a public health care system.

In the United States, the term managed care is commonly used to refer to any of several types of private insurance plans. These types are (1) health maintenance organizations, (2) preferred provider organizations, and (3) managed care indemnity plans.

Health maintenance organizations (HMO’s) differ from traditional indemnity insurance plans in that they not only finance health care, but they also supply it. In return for premiums, an HMO promises to provide the patient with complete health care services.

An HMO makes a profit only if the services it provides cost less than the premiums it receives. HMO’s therefore have a strong financial incentive to control health care costs. An HMO can control costs by keeping its members healthy, by providing health care in a cost-efficient way, or by limiting the health services it provides.

An HMO may provide health care in one of two ways. It may employ doctors, nurses, and other professionals directly. Or it may enter into contracts with providers who agree to furnish medical care to members of the HMO. HMO’s that employ health care providers directly may use special incentives to encourage the providers to control costs. Such incentives include bonuses and raises linked to the provider’s success in limiting the amount of money spent on care.

Providers who contract with an HMO are often paid capitations. A capitation is a fee for each patient assigned to the provider. In return for capitations, the provider promises to care for each patient, no matter how extensive the care may be. Health care providers receiving capitations earn a profit only if the total value of the capitations exceeds the cost of the care they provide.

Preferred provider organizations (PPO’s) are groups of doctors or other health care providers who make special contracts with insurers. Under these contracts, the providers promise to give medical care at a price negotiated with the insurer. The price is typically lower than that charged by other health care providers. An insurer’s contract with its patients encourages them to seek care from providers who belong to the PPO. For instance, the contract may require the insurer to pay 90 percent of the cost if the provider is affiliated with the PPO but only 70 percent if the provider is not affiliated.

Managed care indemnity plans resemble traditional indemnity plans in that they give patients money for at least part of the care the patient receives. But they differ in two possible ways. First, they may provide financial incentives to patients to seek certain types of care. For example, a plan may pay all the costs associated with outpatient surgery but only 80 percent of the costs associated with inpatient surgery. Second, these plans may refuse to reimburse the patient unless the patient takes certain actions. For example, a plan may require the patient to get a second surgeon’s opinion prior to undergoing surgery that has been recommended by another surgeon. The plan will pay for the surgery only if the second opinion is the same as the first.

The managed care debate. Many people have expressed concern about the quality of care received by patients in managed care plans. Some patients and doctors fear that the plans’ cost-control incentives limit the quality of care provided. For instance, critics of HMO’s point out that HMO doctors have an economic incentive to prescribe cheaper drugs that have more side effects, or are less effective, than more expensive drugs. Similarly, critics claim that managed care plans have a financial incentive to rush a patient home from the hospital following an operation or other medical procedure.

Some laws in the United States require that certain minimum levels of care be provided to patients who suffer from particular conditions. These laws include the federal Newborns’ and Mothers’ Health Protection Act of 1996. This law requires insurance plans to pay the cost for mothers and their newborns to stay in the hospital for at least 48 hours after the baby’s birth.

By the late 1990’s, additional laws had been proposed by legislators in the state and federal governments. One proposal called for requiring health care providers who worked on behalf of managed care plans to discuss all possible treatment options with patients rather than just the treatment favored by the plan. Another proposal suggested making managed care plans subject to medical malpractice liability suits, which accuse a health care provider of injuring a patient through negligence or error. In most parts of the country, providers who worked for the plans were subject to such suits, but the plans themselves were not.

Despite the criticism of managed care plans, some people believe the plans provide excellent health care. For instance, many managed care plans have high immunization rates among their members. Also, many give their doctors treatment guidelines that are regularly updated to incorporate advances in medical science.

In other countries, managed care plans may take the form of national health insurance programs that provide health care for almost all the country’s people. One such country is the United Kingdom. There the government pays the salaries of most doctors and owns and funds most of the hospitals. In Canada, the provinces and federal government share the cost of most health care services. Canada’s provincial governments affect the delivery of health care in a number of ways. For example, they control the number of doctors and the availability of expensive, hospital-based medical equipment. Australia has a national health insurance plan that provides basic health care for all of its citizens. Private insurance companies offer coverage for care not provided by the Australian government. Germany has organizations called sickness funds that resemble HMO’s in the United States.