What Is Managed Care?
When someone mentions healthcare, any number of thoughts might arise, particularly because it's a very general term for a very large and in-depth topic. More often than not, when someone hears the term managed care, the same situation occurs. What image comes to mind when you hear managed care? You may be surprised to find out that managed care (also known as managed care organization, or MCO) actually describes a specific type of health insurance, which is insurance that pays for medical expenses.
Managed care is defined as health insurance that contracts with specific healthcare providers in order to reduce the costs of services to patients, who are known as members. Simply put, the health insurance company and a provider (physician, nurse practitioner, physician's assistant, surgeon, specialist, hospital, etc.) create a legal agreement or contract in which the provider agrees to offer specific services at reduced costs. In turn, the insurance company agrees to limit their members' options to the providers who signed contracts, driving members toward these providers.
History of MCOs
Now that you have a definition of managed care, let's look at a bit of history surrounding MCOs in the U.S. Although many people think that managed care emerged in the mid-1970s, managed care has actually been used in the United States for over 100 years. In 1910, the Western Clinic in Tacoma, Washington, offered lumber mill owners and their employees medical services with their specific providers for a monthly payment of 50 cents per member. The clinic ensured a flow of patients, while its patients received care at affordable rates. This is an example of a small, private managed care health insurer. However, the majority of people in the United States are more familiar with larger managed care health insurers, like Anthem and Cigna, or government programs like Medicare and Medicaid.
Managed Care Delivery Systems
There are three basic health delivery system options in managed care, better known as insurance plan options. They are health maintenance organizations (HMO), preferred provider organizations (PPO), and point of service (POS) plans. It's important to mention that insurance organizations do not have to offer all three options.
HMOs require their members to select a contracted primary care doctor who will coordinate their care with other contracted specialists and facilities, specific to each member's healthcare needs. The HMO will pay for member services that are provided by contracted providers only. They refer to their contracted providers as in-network. If the member decides to see a doctor that is not contracted, referred to as out-of-network, then the HMO will likely not pay for the services, and the member will have to pay for these services out of his or her own pocket.
PPOs allow members to use providers that are both contracted and not-contracted. In general, the PPO will pay in full for the member's services provided by a contracted (in-network) provider, while they may only pay for partial services from the non-contracted (out-of-network) provider.
POS plans allow members to select either the HMO or PPO option each time they seek services, giving the members more control over how much of their medical care is paid by insurance.
While HMO, PPO, and POS plans are standard healthcare delivery systems, MCOs can modify these plans to meet their organizational needs. You already learned that not all three options are required to be offered. In addition, the details within each option can also differ dramatically from one MCO to another. Remember, MCOs are insurance companies.
For example, one MCO might require its HMO members to obtain a referral in order to see a specialist, while another MCO might not. A referral is a letter from their primary care doctor requesting a particular specialist to evaluate a member's specific medical need that falls outside their scope of practice. It's vital that members read and understand their health insurance plan, so they know what's required in order for their medical expenses to be covered.
Managed care, health insurance that contracts with specific healthcare providers in order to reduce the cost of services to patients, has a long history in the United States, in both private and government insurance organizations. The purpose of managed care is to reduce the costs of healthcare, making services and coverage more affordable to more patients, also called members.
The three main delivery systems are health maintenance organizations (HMO), which require their members to select a contracted primary care doctor; preferred provider organizations (PPO), which use providers that are both contracted and not-contracted; and point of service (POS), which allow members to select either the HMO or PPO option each time they seek services. Contracted providers are considered to be in-network, while doctors that are not contracted are referred to as out-of-network providers. A referral is a letter from their primary care doctor requesting a particular specialist.
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