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The term, “managed care” is commonplace and to many, has something of a stigma attached to it. In today’s article, I’d like to share some managed care fundamentals to help clarify this sometimes complex topic.
Managed care started more than 30 years ago as a means of controlling then-rising health insurance costs. Since then, the concept has grown steadily and many varieties have developed.
Some Managed Care Fundamentals
In general, managed care involves the integration of health care financing and delivery into a single unit. It differs from traditional health insurance, in which there is no direct relationship between the provider of the medical services and the payer.
Traditionally, the provider rendered a medical service, issued a bill and, within the limits of the insurance policy, the insurer paid all or a portion of it. In that model, the patient was free to obtain services from whomever he or she wanted who would accept the insurance reimbursement.
In contrast, in a managed care model, a managed care plan negotiates terms and reimbursement rates with a network of care providers. The patient (“member”) is referred to that network, and may choose any provider who is likewise a provider for the network. In some cases, the patient is permitted by the plan to go “out of network,” but reimbursements and co-payments may differ.
“Out of network” means that the provider is not a participating provider in the network. If there is not a provider in the network who is willing or able to furnish the needed service, such as a speciality provider, there may be no additional co-payment payable by the member.
Among the ways that managed care accomplishes the goal of controlling health care costs are by the use of incentives to members and to providers to use more cost-effective methods of care. Critics of managed care argue that less effective methods of care are used to save money. The contrary position is that in a market-based system, any short-term savings would be offset by long-term costs, such as financial ones (the need to provide additional corrective care), legal and regulatory costs.
How Traditional Health Insurance Differs From Managed Care
Traditional health insurance differs from many types of managed care plans in yet another way. Under a traditional indemnity health insurance plan, the cost of care is divided between the insurer and the patient under the terms of the insurance policy.
Specifically, the health insurance company agrees to pay a percentage of allowable expenses, and the insured agrees to pay deductibles and co-payments. Therefore, the more frequently an insured uses the insurance, the more expensive it is for the insurer (it is paying more claims) and for insured (he or she is paying multiple deductibles and co-payments), but the physician or health care facility incur no additional costs.
In contrast, many managed care plans to broaden financial responsibility by placing some of it on the health care provider. The theory for doing this is that the provider should bear some of the risk of the patient’s (ill) health when he or she is under the provider’s care by limiting the amount paid to the provider per patient (the “capitation”), and by encouraging wellness and preventive medicine.
Another element of managed care that is controversial is “utilization review.” This is broadly defined as the review of a proposed procedure to determine whether it is “medically necessary.” Medical necessity involves an evaluation of whether there is a less costly alternative to achieve the same or similar health care goal for the member. An objection to this part of the managed care process is that someone other than the patient’s health care provider (the plan “bureaucracy”) is too closely involved in the care decision to the point of having a financial veto of it.
In most jurisdictions, managed care organizations are regulated similarly to insurers. This is because they accept current dollars in return for the promise of future health care benefits and are therefore “risk-bearing”. Therefore, regulators are concerned with solvency, issues of “fair play” in the handling of claims and other elements of customer service, ensuring that consumers understand what they are buying and how the product works.
These managed care fundamentals provide a good foundation for your further understanding of healthcare insurance. If you have a complex issue you need help with, please know I am available to help as The Insurance Problem Solver from Tallahassee.[/fusion_builder_column][/fusion_builder_row][/fusion_builder_container]