I.

Introduction

Managed Healthcare, a general classification used for a type of health insurance that provides comprehensive medical care based on a prepaid contract as opposed to traditional fee-for-service health insurance. Traditional health insurance pays a healthcare provider each time a medical service is performed. Managed healthcare plans, however, pay healthcare providers a set monthly fee for each member of the plan, regardless of whether the member seeks medical care. Managed healthcare plans are so-named because they attempt to manage or control the costs of healthcare by requiring participants in the plan to seek medical care from designated physicians. These physicians act as “gatekeepers” who determine if patients need to see more costly medical specialists.

Most managed care systems encourage preventive medicine, operating with the philosophy that it is better for the patient and more cost-effective to focus on preventing illness or to treat an illness in its early stages than to treat an illness in advanced stages. Accordingly, managed healthcare plans provide broad coverage for preventive care, such as immunizations and physical examinations, unlike traditional health insurance plans. Managed healthcare plans were also among the first to focus on providing care in an “out-patient” setting, such as a clinic or a physician’s office, rather than more expensive “in-patient” care in hospitals.

The first managed care plans formed in the United States in the late 1920s and early 1930s, but they did not become widespread until the 1980s. Prior to the 1980s, doctors and hospitals historically were paid on a fee-for-service basis. Their income increased by delivering more services, and health insurance companies typically complied with these increased services by paying the bills they received. With incentives like this in place, American doctors adopted new technologies quickly, hospitals invested in expensive new technologies, and American patients sought out specialists to provide care. The result was increasing costs in providing healthcare. Managed care plans were created, in part, to address the issue of rising healthcare costs.

Health insurance experts are still divided over whether managed care plans have succeeded in helping to tame cost increases. Some critics of managed care plans maintain that they have actually helped increase costs because patients can see their physician as many times as they like without paying a separate fee for each visit. Critics also argue that in playing the “gatekeeper” role, physicians are under pressure to control costs and therefore may hesitate to refer a patient to a specialist. Supporters argue that managed care plans have helped control costs because the plans encourage early detection of health problems when it is easier and less expensive to cure the problem.

Managed care plans are unique to the United States. They are usually offered through employers, although individuals and senior citizens who receive government-funded health insurance through Medicare can enroll directly in managed care plans. Most employer-sponsored plans allow an “open enrollment period” of one month when employees can decide whether they want a managed care plan or a traditional fee-for-service plan, also known as an indemnity plan. (See also Health Insurance.) There are three basic types of managed care plans: health maintenance organizations (HMOs), preferred provider organizations (PPOs), and point-of-service plans.