In the 1970s, most insured Americans were covered under their employers' indemnity health insurance plans. This type of "fee-for-service" insurance did nothing to encourage patients, physicians or hospitals to curtail health care expenditures. Rather, indemnity insurance provided comprehensive benefits with low patient co-pays and reimbursed medical providers for each and every service they provided. Managed care emerged in the 1980s in response to excessive health care spending. This type of insurance relies on market competition to contain costs.
Managed Care Benefits
Leading health economist, Paul J. Feldstein, describes "moral hazard" as the excessive service demand that occurs when people pay so little for health care that they have no concern for the cost. Managed care health coverage is designed to eliminate this consumer behavior.
According to Feldstein, managed care is also structured to discourage physicians from performing unnecessary tests and procedures and to end the supplier-induced demand resulting when providers feel no fiscal responsibility to limit services.
Proponents of managed care claim that it promotes the efficient allocation of medical resources by focusing on the quality of care provided rather than the quantity. When reimbursement for services is not guaranteed, physicians and other medical providers are more likely to choose the best diagnostic assessment tools and to recommend proven methods of treatment.
Managed Care Techniques
Limiting provider networks is one way that Managed care health plans reduce cost and promote market competition. There are three primary types of managed care organizations: health maintenance organizations (HMOs), preferred provider organizations (PPOs) and point-of-service (POS) plans. The HMO assigns the primary physician with the task of "gate-keeping." That is, patients must be referred for treatment by specialists. HMOs, the most restrictive of the managed care organizations, lost popularity in the 1990s due to growing public criticism and negative media attention. PPOs and PSOs gained favor by affording the patient wider access to out-of-network providers. As HMOs, these plans provide incentives and discounts for staying within the approved provider network.
Utilization management, or UM, is another cost-controlling technique used by managed care organizations. UM is pre-authorization for services.
Managed care organizations usually incorporate approved drug formularies into their plans. The insurers negotiate lower pricing with large pharmaceutical companies to "carry" specific prescription drugs.
Innovative Cost Containment
In recent years, managed care health plans have developed new techniques for saving health care dollars. Early intervention chronic disease management, use of scientifically proven best practice treatment standards, electronic patient records, and provider report cards are a few common cost containment methods in use today. The innovation of high deductible, consumer-driven health care (CDHC) plans are shifting the responsibility and financial risk of health care maintenance and management to the patient.
References
- "Health Policy Issues: An Economic Perspective;" Paul J. Feldstein, 2007
- "Health Economics: Theories, Insights, and Industry Studies;" Rexford E. Santerre & Stephen P. Neun, 2007
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