Managed Care Essay

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Managed care and managed care plans typically refer to the way health care plans both provide care and pay for services provided within a network. Networks consist of providers, such as physicians and hospitals, that serve an enrolled population of individuals, also called “enrollees,” who receive such services. Introduced in the United States in the 1980s, managed care plans arose as a way to control rising health care costs and to provide coverage to a greater number of individuals. Prior to the 1980s, the most common type of health care coverage was the indemnity system, also known as a “fee-for-service” or “pay-as-you-go” plan. In an indemnity plan, individuals choose physicians and services and receive bills for costs incurred for services—much like an open market system. By the 1990s, managed care plans were the most common method of providing health care in the United States. In fact, according to estimates for the early years of the 21st century, of those Americans with health insurance, between 50 and 75 percent have some form of a managed care plan.

Types of Managed Care Plans

One of the first issues related to managed care is the multitude of plans, often referred to by their acronyms. The three most common types of plans are the health maintenance organization (HMO), the preferred provider organization (PPO), and the point of service (POS). Although subcategories and variations exist for each of these plans, the basic structure and elements of each are as follows. Basic HMOs (also called “staff HMOs”) are a closed system in one physical setting in which the organization provides health care to enrollees, sets the rates for services, and pays its service providers, who function as employees. As part of this plan, a doctor, usually a primary care physician (PCP), determines access to other services, such as specialty care. The term gatekeeper arose to describe an individual’s PCP because of the major role these physicians play in controlling an individual’s access to other services. When a PCP refers an individual for services within the network, the individual does not pay, but individuals are responsible for any services outside of the HMO. Hybrid versions of the HMO plan, such as the group model HMO, network HMO, or the mixed model HMO, have also recently sprung up.

The second type of managed care plan, the PPO, differs from the basic HMO plan. Here, providers are not located at one physical setting, but they still function as a network of providers. In this type, both doctors and patients can serve as gatekeeper and make referrals to other services. Unlike the basic HMO model, PPO members make a co-payment when they see providers within the network. Also unlike an HMO plan, members of a PPO can use services outside of their network, and the PPO plan will pay a reduced portion of the cost. However, enrollees pay less for services within the network.

The last general type of plan is the POS. For this plan, the decision to go in or out of the network is condition based; upon each new medical condition, the patient can make that determination. If the patient chooses to make a referral out of the network, only some fees are covered, but if the physician refers a patient out of the network, fees are covered.

Paradoxical Views Toward Managed Care

Surveys indicate that when asked to provide a rating of their own managed care plans, the American public tends to give their individual managed care plans high overall ratings. Yet attitudes of individuals and physicians are quite negative to the concept of managed care in general.

People cite long wait times for appointments, few choices of physicians, and limited access to new medical procedures and technologies. They mention the heavy-handed role of the primary care physician as gatekeeper; and, since the physician’s payment does not depend upon quality of service provided, the overall quality of service is poor. Physicians, on the other hand, mention their lower rates of reimbursement, restrictions on their decision making (such as limiting access to new treatments and having lists of approved drugs), threats to their professional role, reduced time spent with patients, and conflicting interests between patient care and fiscal management.

Efficacy of Managed Care Plans

Recently, researchers commonly called into question the ability of managed care plans to provide quality services while managing costs. In terms of cost, two of the greatest proposed advantages of managed care are its reduction in hospital stays and a more efficient use of new medical technologies. Yet, despite these stated advantages, the majority of studies find either zero or only a modest cost difference between managed care plans and fee-for-service plans. Several federal agencies developed standard markers of quality of care to monitor the level of services managed care plans provide. As enrollment in managed care plans continues to increase, federal agencies see monitoring the quality of care as essential to prevent some potential limitations built into the system.


  1. Chandra, Ashish, William K. Willis, and Katherine Miller. 2005. “Patient and Physician Relationships in Managed Care Environments—A Comparative Analysis of Various Models.” Hospital Topics 83(3):36-39.
  2. Kaiser Family Foundation (KFF). 2007. “Kaiser Public Opinion Spotlight: Managed Care—the Public, Managed Care, and Consumer Practices.” Menlo Park, CA: Kaiser Family Foundation.
  3. Mechanic, David. 2004. “The Rise and Fall of Managed Care.” Health and Health Care in the United States— Origins and Dynamics. Special Issue of Journal of Health and Social Behavior 45:76-86.
  4. Pati, Surmita, Steven Shea, Daniel Rabinowitz, and Olveen Carrasquillo. 2005. “Health Expenditures for Privately Insured Adults Enrolled in Managed Care Gatekeeping vs. Indemnity Plans.” American Journal of Public Health 95(2):286-91.

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