5.2 Managed Care Plans

The Managed-Care Idea

Managed care integrates the financing of health care with the delivery of care, steering members toward contracted providers to control cost and quality. The exam tests four models — HMO, PPO, POS, and EPO — and you must be able to distinguish them on three axes: gatekeeper, out-of-network coverage, and provider payment.

Health Maintenance Organization (HMO)

The Health Maintenance Organization (HMO) is the most restrictive — and most heavily tested — model. Its defining features:

• Gatekeeper PCP: Each member selects a primary care physician (PCP) who coordinates all care and must issue a referral before the member sees a specialist.
• Capitation: The HMO pays providers a fixed amount per member per month (PMPM) regardless of how many services the member uses. This shifts utilization risk to the provider and rewards preventive care.
• Prepaid care: Members pay a fixed premium and small copays rather than per-service charges — care is prepaid, not fee-for-service.
• Service area: Coverage is limited to a geographic service area; non-emergency care outside it is generally not covered.
• Emphasis on prevention: HMOs cover routine checkups and screenings with low copays to catch problems early.

Preferred Provider Organization (PPO)

A Preferred Provider Organization (PPO) contracts with a network of providers who agree to discounted fees, but it gives members far more flexibility than an HMO:

• No gatekeeper: Members may see specialists without a referral.
• In- vs. out-of-network: Care from network ("preferred") providers carries lower cost-sharing; out-of-network care is still covered but at higher deductibles and coinsurance.
• Fee-for-service: Providers are typically paid on a discounted fee-for-service basis, not capitation.

The PPO trade-off is flexibility for cost: members pay more in premium and cost-sharing than HMO members but can use any provider.

Point-of-Service (POS) Plan

A Point-of-Service (POS) plan is a hybrid. It behaves like an HMO inside the network — the member chooses a gatekeeper PCP and gets the lowest cost with referrals — but, like a PPO, it permits out-of-network care at the member's higher expense. The member effectively decides at the "point of service" whether to stay in-network (cheaper) or go out (costlier). Remember: POS = HMO gatekeeper + PPO out-of-network option.

Exclusive Provider Organization (EPO)

An Exclusive Provider Organization (EPO) covers only in-network providers (except true emergencies), like an HMO, but generally requires no PCP and no referrals, like a PPO. It is the in-network discipline of an HMO with the referral freedom of a PPO.

Comparing the Four Models

Two high-yield distinctions: the gatekeeper column separates HMO/POS (yes) from PPO/EPO (no), and the out-of-network column separates HMO/EPO (no) from PPO/POS (yes).

Capitation vs. Fee-for-Service

Capitation pays the provider a set amount per member per month no matter how much care is delivered — the hallmark of the HMO. It rewards efficiency and prevention but can create an incentive to under-treat. Fee-for-service pays per service rendered; it rewards volume and is the traditional indemnity and PPO model.

Utilization Review

Utilization review (UR) is the process managed-care plans use to control unnecessary care and cost. Texas tests three timing types:

• Prospective review — evaluating necessity before care (e.g., precertification/preauthorization for non-emergency hospital admissions).
• Concurrent review — monitoring an ongoing hospital stay to ensure continued medical necessity.
• Retrospective review — reviewing claims after treatment to confirm services were appropriate.

UR is paired with case management for high-cost cases. The recurring exam point: precertification is a prospective UR tool, and failing to precertify can reduce or deny benefits.

HMO Model Variations

The exam recognizes several ways an HMO organizes its physicians, and the differences matter for how providers are paid and whether they see non-HMO patients:

• Staff model — physicians are salaried employees of the HMO, practicing in HMO-owned facilities. Least flexible for the member, most control for the HMO.
• Group model — the HMO contracts with one multi-specialty physician group that serves HMO members, usually on a capitated basis.
• Independent Practice Association (IPA) model — the HMO contracts with an association of independent physicians who keep their own offices and also treat non-HMO patients. This is the most common arrangement.
• Network model — the HMO contracts with multiple physician groups.

Cost vs. Flexibility Trade-Off

A recurring theme across all four managed-care models is the inverse relationship between cost and flexibility. The HMO offers the lowest premiums and cost-sharing but the least freedom of provider choice; the PPO offers the most freedom but at higher cost. POS and EPO sit between the two. When an exam question asks which plan a cost-conscious member who is willing to use a gatekeeper would prefer, the answer is the HMO; when it asks which a flexibility-seeking member who wants out-of-network access would prefer, the answer is the PPO.