21.2 Managed Care Plans
Key Takeaways
Managed care controls costs through networks, negotiated fees, and utilization review.
HMOs use closed networks and PCP gatekeepers with limited out-of-network coverage.
PPOs allow more flexibility and out-of-network use at higher cost.
EPOs require in-network care but do not require PCP referrals.
POS plans blend HMO gatekeeping with PPO-style out-of-network access.
Utilization review includes pre-certification, concurrent, and retrospective review.
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.
Key Takeaways
- Managed care controls costs through networks, negotiated fees, and utilization review.
- HMOs use closed networks and PCP gatekeepers with limited out-of-network coverage.
- PPOs allow more flexibility and out-of-network use at higher cost.
- EPOs require in-network care but do not require PCP referrals.
- POS plans blend HMO gatekeeping with PPO-style out-of-network access.
- Utilization review includes pre-certification, concurrent, and retrospective review.
Which managed care plan type requires members to select a primary care physician (PCP) who acts as a "gatekeeper" and provides referrals to specialists?
PPO (Preferred Provider Organization)
EPO (Exclusive Provider Organization)
HMO (Health Maintenance Organization)
Indemnity plan
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?
HMO
PPO
EPO
POS
What is the purpose of prospective utilization review in managed care?
To review claims after treatment is completed
To monitor ongoing hospital stays
To obtain preauthorization before treatment begins
To negotiate provider contracts
Sections you finish are checked off in the contents.