DIFFERENT TYPES OF MANAGED CARE

What Is Managed Care?

Managed care is a generic term that applies to different types of health care insurance arrangements. The goal of a managed care system is to provide members with needed health care services at the lowest possible cost. Some managed care plans also focus on prevention, trying to keep members healthy. Managed care systems typically combine the financing and delivery of health services. They do this by covering some or all of the costs of health care services (financing), while encouraging members to obtain services from the organization’s network of providers (delivery system). In some managed care arrangements, members must seek care from within the health plan’s network of providers. In other arrangements, members can obtain services from any provider, but the health plan will pay more of the bill if the patient obtains care from a network provider.

Two primary components of a managed care plan are systems that oversee the amount and type of health care services being used (utilization review) and provider reimbursement methods that discourage unnecessary care. Managed care organizations often require members to get approval before obtaining certain services. Some managed care organizations also give providers financial incentives to eliminate unnecessary care. Some of the most common managed care arrangements are:

• Preferred Provider Organizations (PPOs): PPOs seek to manage medical costs by contracting with a network of providers who are willing to accept lower reimbursement rates. These providers often must also meet other requirements, such as utilization review. Members can choose any health care provider but members will have to pay additional money if they use a provider who is not part of the network. PPOs are frequently used by traditional insurance companies.
  
  
• Health Maintenance Organizations (HMOs): HMOs have exclusive provider networks. They may also use s (PCP) as gatekeepers. Gatekeepers are responsible for arranging a patient’s referral to a specialist or admission to a hospital. While most HMOs use gatekeepers, some HMOs have open access plans. These plans allow the patient to choose any PCP or specialist in the network without a referral. Many HMOs also use reimbursement systems to encourage providers to be more cost conscious. HMOs may contract directly with physicians in the community, or may contract with networks of physicians. This arrangement is called a network or IPA model HMO. HMOs may have their own physicians on salary or in an exclusive contractual arrangement. This is called a group- or staff-model HMO.
  
  
• Point-of-Service (POS): POS plans give members the opportunity to see providers outside the network. Members who use a provider in the HMO’s network pay less than members who see providers outside the network. The HMO may still require the use of a gatekeeper to authorize in-network services, but no referral is needed for out-of-network services.
  
  
• Primary Care Case Management (PCCM): Primary care case management programs only operate within the Medicaid program. In PCCM programs the Medicaid agency pays a primary care provider (PCP) a monthly management fee to manage the member’s care. However, physicians are reimbursed for the services they provide on a fee-for-service basis. The PCP acts as the patient’s gatekeeper and must authorize all non-emergency visits to the hospital and all referrals to specialists.
  

How Are Managed Care Plans Different from Traditional fee-for-service Plans?

In a traditional fee-for-service system, the insurance company pays the bills but the patient has freedom to choose the provider. In most managed care arrangements the company limits the network of providers. Managed care organizations usually give members a financial incentive to obtain care from within the network.

HMOs are the most different from traditional insurance plans. They offer both advantages and potential disadvantages over other forms of health insurance. For example, HMOs emphasize prevention and are more likely to cover annual physicals or well child check-ups than are other insurance carriers. In addition, the HMO industry has made greater efforts to measure the quality of care provided to members. While HMOs offer advantages over traditional insurance plans, there are also potential disadvantages. HMO members must obtain care from health care providers who are in the HMO’s network. This limits choice of providers. Typically, HMO members also are required to obtain approval from their PCP before receiving care from a specialist. In addition, HMOs sometimes give physicians or other health care providers’ financial incentives to be more efficient managers of care. While these payment mechanisms provide an incentive to reduce unnecessary care, some people worry that these payment mechanisms also may provide incentives to withhold necessary care. In contrast, some people were concerned that traditional fee-for-service gave physicians incentives to providing unnecessary care.

What Is the Difference between an HMO, POS or PPO

• Health maintenance organizations (HMOs) have exclusive networks of providers. If you are in an HMO it will not usually pay any part of your bill if you choose a provider outside of the HMO’s network without prior authorization. HMOs do not require their members to pay a deductible although there may be a copayment each time you receive services.
  
  
• Point-of-service plans (POSs) permit members to see providers outside the network. The HMO will help pay part of the bill but will not pay as much if you go to a provider within the network. For example, if you see a physician inside the network, the HMO will pay all of the costs except any required copayment. If you choose to see a physician outside the network, then the HMO may only pay 70-80% of the costs. You would be responsible for paying the physician the remaining 20-30% of the costs. In addition, you may also have to meet a deductible for out-of-network services, and will usually have to pay a higher premium. Under state law, HMOs can exclude coverage for preventive services if you obtain care from a non-network provider.
  
  
• organizations (PPOs) are more like traditional insurance companies. Once you meet the deductible, the insurance company will pay a certain percentage of the health care bill. However, you must go to one of the network providers to get the highest level of coverage. A PPO will pay a smaller percentage of the bill if you go to a provider outside of the network. For example, the insurance company may pay 80% of the costs if you seek care from an in-network provider, but only 50-60% of the costs if you seek care from a non-network provider.
  

Does My Health Plan Operate Differently Because I Am in a Self-Insured or ERISA Plan?

Some employers purchase health insurance coverage directly from an insurer or HMO. In these instances the employer pays the monthly premium and the health plan pays for the medical services. The insurance company or the HMO assumes the financial risk for paying for all of your needed services. In other instances, the employer “self-insures.” This means the employer is at risk for the health care costs of covered employees and dependents. If an employee incurs $1 million in covered health care costs, the employer will pay these costs directly instead of paying a monthly premium to a third party insurer for accepting this risk and paying the cost. The employer retains the financial liability for paying for all covered services. These plans are typically called self-funded, or self-insured plans.

A federal law called ERISA (Employee Retirement and Income Security Act) sets up rules that apply to self-funded plans. Companies that “self-fund” are exempted from state consumer protection laws. For example, self-funded companies do not need to provide coverage for mammograms or pap smears. Nor do they have to provide state appeal and grievance procedures. While self-funded companies are not subject to the state’s consumer protection laws, they are subject to federal laws that protect consumers. In 1996, Congress passed a law that prohibits insurance companies or health plans from excluding people based on their health status. This is known as the Health Insurance Portability and Accountability Act (HIPAA). These federal laws apply to both traditional insurance plans and self-funded plans.

While self-funded plans are not required to provide the same consumer protections as other state-regulated insurance plans or HMOs, many employers do so voluntarily. The federal ERISA laws give employees certain protections. Health plan administrators must give employees a Summary Plan Description (SPD) which includes a summary of the benefits covered under the plan.¹ In addition, employees who are covered by self-funded plans also have limited appeal provisions. Basically, an employee who is dissatisfied with a health benefits decision can appeal to the health plan administrator. If that is unsuccessful, then the member can file a lawsuit in federal court.²

If you have any questions or concerns about an ERISA plan, you can contact the US Department of Labor, which oversees ERISA plans. Contact information for the Department of Labor is at the back of this booklet.

It is often difficult to know whether your company is operating an ERISA plan or buying a traditional insurance plan or HMO coverage. You may get an insurance card that looks like you are enrolled directly in an HMO or insurance company even though your employer is still retaining the financial risk for paying for all the health care claims. The easiest way to find out whether you are enrolled in a self-funded ERISA plan or whether you are enrolled directly in the state-regulated HMO or insurance company is to ask your employer.

Remember that the ERISA laws only apply to self-funded employer sponsored health plans. If you buy your health insurance directly from an insurance company or non-group plan HMO, or if you receive health insurance coverage through a church, professional association, or the government, you are not enrolled in an ERISA plan.

How Do I Know What Type of Plan I Am In?

The easiest way to know what type of managed care plan you are in is to look at your Evidence of Coverage or Policy Contract, which is the booklet that explains your health plan. It should state whether you are in an HMO, POS, or PPO. Finding out if you are in a state-regulated HMO or in a self-funded plan may be more difficult. You generally will need to ask the employer who provides your health insurance coverage.

¹The US Department of Labor proposed new rules that would expand the type of information that would be provided to enrollees in their Summary Plan Description. The proposed regulations can be found at 63 Fed Reg 48376-48387 (September 9, 1998).

²The US Department of Labor has proposed new rules that would ensure more timely benefit determinations, and expand the protections to ensure fair hearings. The proposed regulations can be found at 63 Fed Reg 48389-48409 (September 9, 1998).

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