Managed Care

Managed care's history dates back to 1972 and U.S. President Richard Nixon’s term of office. That was the year Nixon signed the HMO Act that provided for start-up grants and loans for the development of health maintenance organizations (HMOs). The oldest form of managed care, HMOs offer members a range of health benefits, including preventive care, for a set monthly fee.

Under the 1972 act, HMOs meeting federal standards pertaining to comprehensive benefits and quality were given preferential treatment in the marketplace. The idea behind the legislation was to control rising medical and insurance costs. While HMOs usually require less paperwork and smaller out-of-pocket expenditures for their members, they limit the pool of physicians and other health care professionals plan members are allowed to visit.

Types of HMOs

There are several types of HMOs. If doctors are employees of the health plan and plan members visit them at central medical offices or clinics, it is a called a "staff" or "group model" HMO. Other HMOs contract with physician groups or individual doctors who maintain private offices. These plans are called "individual practice associations" (IPAs) or networks.

HMOs generally provide enrollees with a list of doctors from which to choose a primary care physician (PCP). It is this doctor who coordinates an HMO member's care, which means generally a member must contact their PCP for approval to be referred to a specialist or therapist. With some HMOs, plan members will pay nothing when they visit doctors. With other HMOs there may be a co-payment, typically $5 or $10, for various services. Most HMOs only cover the cost of charges for doctors affiliated with that plan. To see a health care professional outside the HMO, the individual usually will pay the bill, although that has been changing somewhat in some plans in recent years.

PPO Plans

Another form of managed care is a preferred provider organization (PPO) which is similar to an indemnity, or "pay-for-service" plan, the more traditional form of insurance. A PPO contracts with doctors, hospitals, and other providers of care who agree to accept lower fees from the insurer for their services. As a result, cost sharing should be lower than if a plan member decides to go outside the network. In addition to referrals made by the PPO doctors, plan members can refer themselves to other doctors, including those outside the plan.

When plan members visit a physician within the PPO network, they pay a co-payment (for instance $10 at a doctor's office or $5 for a prescription). This payment will be based on lower charges for PPO members. When PPO plan members choose to go outside the network, they have to meet the plan deductible and make a co-payment based on higher charges.

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