Health Insurance - Managed Care

Many employers in recent years have sought more cost-effective ways to finance care for their employees because of increasing medical care costs under the traditional indemnity system (also called fee-for-service). This trend resulted in a movement toward "managed care" plans, which promote more efficient use of medical services in order to contain treatment costs.

The two major types of managed care systems are health maintenance organizations (HMOs) and preferred provider organizations (PPOs). These organizations contract with physicians and medical facilities to control care quality and costs; create financial incentives for subscribers to use the contracted physicians and facilities and require providers to bear some financial risk for care.

HMO-Health Maintenance Organizations. HMOs are the oldest form of managed care plans and typically the least expensive way to receive medical care.

In exchange for low rates, HMO members give up the freedom to choose their own doctors and must use doctors within the HMO network. In almost all HMOs, you either are assigned or you choose one doctor to serve as your primary care doctor. This Primary Care Physician (PCP) monitors your health and provides most of your medical care, referring you to specialists and other health care professionals as needed.

There are some exceptions, but generally if participating providers are not used, or approval for their use is not received, medical services will not be covered.

Because HMOs receive a fixed fee for your covered medical care, it is in their interest to make sure you get basic health care for problems before they become serious. HMOs typically provide preventive care, such as office visits, immunizations, well-baby checkups, mammograms, and physicals. The range of services covered vary in HMOs, so it is important to compare available plans. Some services, such as outpatient mental health care, often are provided only on a limited basis.

Many people like HMOs because they do not require claim forms for office visits or hospital stays. Instead, members present a card, like a credit card, at the doctor's office or hospital. However, in an HMO you may have to wait longer for an appointment than you would with a fee-for-service plan.

The downside to HMOs is that they require members to get treatment within the designated provider network. If you decide to obtain medical treatment outside the network, the HMO will not cover your care, except in certain emergencies. Even then, a member must notify the plan about the emergency as soon as possible. If you are on vacation in another country, you might not be covered-even in an emergency.

Finally, some HMOs have been criticized for limiting their patients' medical options in order to control costs, or for impersonal treatment and "assembly-line" care.

Many HMO members tolerate these drawbacks because their out-of-pocket expenses are lower. Unlike traditional indemnity plans, HMOs do not require you to pay a deductible or coinsurance. Instead, you pay a fee (your "co-payment"), typically no more than $15 for an office visit, and there is usually a minimal charge for preventive care such as routine physical exams and blood screenings.
The bottom line: HMOs offer lower out-of-pocket expenses, but less freedom of choice in providers.

PPO-Preferred Provider Organizations. The preferred provider organization is a combination of traditional fee-for-service and an HMO. Like an HMO, there are a limited number of doctors and hospitals to choose from. When you use those providers (sometimes called "preferred" providers, other times called "network" providers), most of your medical bills are covered.

When you go to doctors in the PPO, you present a card and do not have to fill out forms. Usually there is a small co-payment for each visit. For some services, you may have to pay a deductible and coinsurance.

As with an HMO, most PPOs require that you choose a primary care doctor to monitor your health care. Most PPOs cover preventive care. This usually includes visits to the doctor, well-baby care, immunizations, and mammograms.

In most cases, a PPO offers the ability to use any doctor or facility you choose, although the benefits are better when you use one of the physicians or facilities that belong to the PPO's network. If participating network providers are not used, coverage for medical services is reduced, but not eliminated.

A PPO has arrangements with doctors, hospitals and other healthcare providers that have agreed to accept lower fees from the insurer for their services. As a result, cost sharing is lower for plan members within a PPO network. Network healthcare providers make referrals, but plan members can self-refer to doctors and specialists, including those outside the plan.

Participants who visit network doctors pay co-payments, or set amounts for certain services; individuals who venture outside the network pay higher fees in the form of deductibles and co-payments. PPO members also are required to make up the difference between what their personal provider charges and what the healthcare plan pays.

The bottom line: PPOs offer more choice in providers, but potentially higher out-of-pocket expenses.