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Understanding Managed Care

If it's been a while since you've shopped around for health insurance, you may find that things have changed since the last time you tackled this chore. Not long ago, you could go to any doctor or hospital, and you and your insurance company would each pay part of the bill. Now, most health insurance policies are some form of managed care, with controls to contain costs.

Today, more than half of insured Americans are covered by a managed care plan--a plan that gives financial incentives to encourage you to use doctors who are part of the plan network. The better you understand managed care, the better you will be able to select the plan that best meets your needs and budget.

How do managed care plans work?

Insurance companies negotiate discounts with medical providers who sign up to be part of the managed care plan's network. In exchange, the providers get an instant pool of patients. The plans generally limit your out-of-pocket expenses for covered care. They usually require (or encourage) that you seek care from a specific list of contracting doctors, hospitals, and other providers. If you go out of the plan's network for medical treatment, you have to pay higher out-of-pocket expenses.

The goal of managed care is to provide health care that is:

  • Cost effective
  • In the best setting
  • Of the highest quality
  • Medically necessary
  • Offered by the most appropriate provider

To increase the overall quality of care and reduce costs, many managed care plans require that you see a primary care doctor (family practitioner, internist, or pediatrician) before visiting a specialist. Your primary care doctor has the responsibility of knowing your complete medical history, making the initial diagnosis, and advising on further treatment.

Health maintenance organizations

  • Your primary care doctor is the gatekeeper who coordinates your health care and refers you to specialists
  • You must use specific health-care providers and facilities to be fully covered
  • You can go outside the network only if prior approval is given or for an emergency
  • Nonemergency and elective admissions to the hospital require prior approval
  • You can go for emergency care wherever and whenever you determine you need it, without prior approval
  • Some treatments and procedures require a second opinion
  • Preventive care programs are available to keep you well
  • Doctors are paid based on a capped or fixed-fee arrangement rather than payment for services given
  • You do not have to file claim forms with the insurance company
  • Screening tests for cancer and other chronic diseases are usually covered

Health maintenance organizations (HMOs) are considered the most restrictive because they offer you the least amount of choices. However, they tend to have both the lowest out-of-pocket costs and the least paperwork, and they promote general wellness programs to keep you healthy.

Preferred provider organizations

  • Most preferred provider organizations (PPOs) do not require a referral from your primary care doctor to visit a specialist
  • You will have higher out-of-pocket costs if you use providers outside the network
  • Prior approval is required for hospitalization (except for an emergency) and some outpatient services
  • Some treatments and procedures require a second opinion
  • Emergency care doesn't require approval if you determine you need it
  • Preventive care is not always covered
  • Your doctors and hospitals are paid for services provided
  • Your medical provider files the claim forms

PPOs are less restrictive than HMOs in your choice of health-care provider, but your out-of-pocket costs may be higher. The coverage provided for treatment and care is similar to an HMO.

Point of service plans

  • There are financial incentives, such as lower out-of-pocket costs, to use network providers
  • You can receive care from providers outside the network without prior approval
  • If you go outside the network, you'll be responsible for filing insurance claims
  • If your doctor refers you out of the network, the plan pays all or most of the bill
  • Premiums are higher than those for HMOs or PPOs

Point of service (POS) plans are less restrictive than HMOs. They combine some features of HMOs and PPOs and have the highest out-of-pocket costs. So even though POS plans allow greater choice at the time the service is delivered, you'll pay more for your health care.

How do I select the plan that's right for me?

There is no perfect plan--you'll have to do some give-and-take. Some questions to consider:

  • Do your current doctors participate in any plans?
  • Does it matter that you might be limited to your choice of doctors and hospitals?
  • What level of services do you really need?
  • Would getting referrals to specialists be a problem?
  • How much can you afford to spend?
  • Are you willing to file insurance claim forms?
  • What is the plan's rating on quality of care and member satisfaction?

What to ask before you buy

After you decide what benefits are important, you will be in a better position to compare individual plans. Plans differ with regard to out-of-pocket costs, services provided, and how easy it is to get those services. Although no plan will pay for everything, some plans cover more than others.

  • Ask to see a network directory. Are your current doctors in it?
  • Are you willing to change doctors if necessary?
  • Are the doctors close to you accepting new patients?
  • Does the plan use a local hospital?
  • Who decides if you can go to the hospital?
  • What is the plan's policy on pre-existing conditions?
  • Is there a maximum lifetime benefit?
  • Are preventive care services offered?
  • What is the prescription drug policy?
  • Are there limits on medical tests?
  • What are the mental health benefits?
  • Does the plan pay for any special services you need?
  • How easily can you change primary care doctors?
  • Are therapies such as acupuncture or chiropractic services covered?
  • How easily can you get help over the telephone?

Whatever plan you choose, you will become a partner with your doctor and insurance company. Keep in mind that managed care plans make more money when they keep you healthy and out of hospitals, reduce the amount of care you receive, and stay within the budget set for each member's total medical care. It will be your responsibility to schedule physical exams and take advantage of other preventive care programs. Make sure there is a good match between what you think you need and what is provided.