Managed Care Plans
Managed care is a healthcare delivery system designed to manage the quality and cost of medical services. Unlike traditional indemnity plans, managed care uses networks of providers and various cost-control mechanisms.
Core Managed Care Concepts
| Concept | Description |
|---|---|
| Provider networks | Contracted providers offer discounted rates |
| Utilization review | Monitoring of medical necessity |
| Care coordination | PCP manages patient's overall care |
| Preventive focus | Emphasis on wellness and prevention |
| Cost containment | Negotiated rates and service controls |
Health Maintenance Organization (HMO)
An HMO is one of the most restrictive but least expensive managed care options:
HMO Characteristics
| Feature | HMO |
|---|---|
| Premium cost | Lowest |
| PCP required | Yes - must select primary care physician |
| Referrals | Required to see specialists |
| Out-of-network coverage | None (except emergencies) |
| Network size | Smaller, more limited |
| Deductibles | Often none or very low |
How HMOs Work
- Select a PCP - Choose a primary care physician from the network
- PCP as gatekeeper - All care coordinated through PCP
- Referrals required - PCP must refer to specialists
- In-network only - Services outside network not covered (except emergencies)
- Copays - Fixed copays for most services
Types of HMOs
| Type | Description |
|---|---|
| Staff model | Physicians are HMO employees |
| Group model | HMO contracts with physician groups |
| Network model | HMO contracts with multiple groups |
| IPA (Independent Practice Association) | HMO contracts with individual physicians |
Exam Tip: In a staff model HMO, physicians are employees of the HMO. In an IPA model, physicians maintain their own practices and contract with the HMO.
Preferred Provider Organization (PPO)
A PPO offers more flexibility than an HMO but at a higher cost:
PPO Characteristics
| Feature | PPO |
|---|---|
| Premium cost | Highest |
| PCP required | No |
| Referrals | Not required |
| Out-of-network coverage | Yes (at higher cost) |
| Network size | Largest |
| Deductibles | Typically required |
PPO Cost Structure
| Service Level | Cost-Sharing |
|---|---|
| In-network | Lower deductibles, copays, coinsurance |
| Out-of-network | Higher deductibles, copays, coinsurance |
| Preventive care | Often covered at 100% in-network |
Example - PPO Cost Comparison:
- In-network specialist visit: $40 copay
- Out-of-network specialist visit: 40% coinsurance after $500 deductible
Exclusive Provider Organization (EPO)
An EPO is a hybrid between HMO and PPO:
EPO Characteristics
| Feature | EPO |
|---|---|
| Premium cost | Middle (between HMO and PPO) |
| PCP required | Usually not required |
| Referrals | Not required |
| Out-of-network coverage | None (except emergencies) |
| Network size | Medium (larger than HMO) |
EPO Key Points
- Like HMO: No out-of-network coverage
- Like PPO: No referrals needed, no PCP required
- Best for: People who want specialist access without referrals but don't need out-of-network coverage
Memory Tip: EPO = HMO network restrictions + PPO flexibility (no referrals)
Point of Service (POS)
A POS plan combines features of HMO and PPO:
POS Characteristics
| Feature | POS |
|---|---|
| Premium cost | Middle |
| PCP required | Yes |
| Referrals | Required for in-network specialists |
| Out-of-network coverage | Yes (at higher cost) |
| Network size | Medium |
How POS Plans Work
| Scenario | Coverage |
|---|---|
| In-network with referral | Best benefits (lowest cost) |
| In-network without referral | May have higher costs |
| Out-of-network | Covered but at much higher cost |
Managed Care Comparison
| Feature | HMO | PPO | EPO | POS |
|---|---|---|---|---|
| Premium | Lowest | Highest | Middle | Middle |
| PCP Required | Yes | No | No | Yes |
| Referrals | Yes | No | No | Yes |
| Out-of-Network | No | Yes | No | Yes |
| Best For | Cost-conscious, healthy | Maximum flexibility | No referral hassle | Balance of cost and choice |
Utilization Review
All managed care plans use utilization review to control costs:
| Review Type | When It Occurs |
|---|---|
| Prospective | Before treatment (preauthorization) |
| Concurrent | During treatment (continued stay review) |
| Retrospective | After treatment (claims review) |
Preauthorization (Prior Authorization)
Many services require preauthorization before treatment:
- Hospital admissions (non-emergency)
- Surgical procedures
- Expensive diagnostic tests (MRI, CT scans)
- Specialty medications
- Durable medical equipment
Failure to obtain preauthorization may result in:
- Denied claims
- Reduced benefits
- Patient responsibility for full cost
Market Trends (2025)
| Plan Type | Marketplace Share |
|---|---|
| HMO | Most common |
| EPO | Growing popularity |
| PPO | Declining in individual market |
| POS | Least common (~4%) |
Current Trend: More than 80% of Marketplace plans are HMOs or EPOs, with PPOs becoming less common in the individual market.
Which managed care plan type requires members to select a primary care physician (PCP) who acts as a "gatekeeper" and provides referrals to specialists?
Sarah wants a health plan that does not require referrals to see specialists but also does not cover out-of-network providers. Which plan type best fits her needs?
What is the purpose of prospective utilization review in managed care?
21.3 Consumer-Directed Health Plans
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