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Blog, Education
November 14, 2022

What is Managed Care in Healthcare?

4 minute read
A calculator, stethoscope, and bottle of pharmaceuticals sit atop hundred dollar bills to show savings from managed care in healthcare

In 2021, most Americans received healthcare benefits from their employers, as they’ve done for the last three decades. According to Statista, over half of the United States population—54.3%—has relied on employer-based insurance plans since 1987.

Traditionally, employers contract with insurance companies to provide healthcare for employees via different plan options. To cover healthcare costs, employers and insurers use a cost-sharing method in which each party agrees to pay providers a set percentage.

While this healthcare model has been the norm for the better part of a generation, the ripple effects of an epoch-making COVID-19 pandemic continue to make changes. Rapid growth and high turnover rates amidst record-breaking inflation have left employers with a drastically different workforce. Add to these factors a projected 48% growth in U.S. health expenditures by 2028, and it’s easy to understand why so many employers are exploring the benefits of managed care.

You’ve probably heard the phrase “managed care” used to describe rehabilitation, elder care, or nursing home facilities. This post, however, does not suggest that a growing tidal wave of senior-level employees are checking themselves into “Ye Olde Rest Home.”

Instead, this blog discusses managed care within the context of healthcare, defined as healthcare delivery methods designed to manage cost and quality without sacrificing either one. We will also describe how managed care works and its effects on healthcare costs.

What Is Managed Care in Healthcare?

In essence, managed care in healthcare refers to a wide range of actions and procedures meant to deliver improved standards of care at lower costs.

As the most common method for providing healthcare services in the U.S. managed care is widely used by traditional health insurance plans. Specifically, managed care uses providers that offer patient care at lower costs to the insurance company, usually through networks. By reducing the costs of services to health insurance companies, the goal is to pass on the savings to plan members as lowered premiums and co-pays.

When it comes to managed healthcare, there are four main types of plans.

Different Types of Managed Care Plans

Most U.S. employees are already aware of health maintenance organizations (HMOs) and preferred provider organizations (PPOs) because they are the most frequently used among managed care plans. However, you should also be aware of some other, less common plans.

  • HMO: HMO plans require members to obtain medical services from providers within their network and to use a primary care physician (PCP) to coordinate a member’s healthcare needs. Normally, members who need medical attention must visit their PCP in person first, who will then recommend they see a specialist or another doctor with a referral. HMOs tend to be much cheaper than PPOs because the smaller networks have built-in cost management agreements. HMO plans also relieve the duty of submitting claims for members because their PCP handles this for them.
  • PPO: PPOs rely on a provider network as a member’s main source of medical care. They offer more flexibility than HMOs because they have fewer network restraints, i.e., members are not required to see a PCP to receive in-network medical care and do not require referrals. While they usually have larger networks that members can navigate for care, they also typically cost more than HMOs. Members of PPO plans are also more likely to be responsible for submitting their own insurance claims.
  • POS: Point of service plans are something of a hybrid or middle ground between HMOs and PPOs. Like HMOs, they require members to obtain PCP referrals before seeing specialists. However, in exchange for a slightly higher premium, they also offer the opportunity to expand healthcare options with out-of-network providers.
  • EPO: Though less frequently used, exclusive provider organizations restrict coverage to in-network care, much like HMOs. However, they offer much larger networks from which to receive care. They are also less likely to require PCP referrals to see specialists. This is another option to elevate care beyond what HMOs offer without paying rates as high as those of PPOs.

Managed Care Plans Pros and Cons

Pros Cons
HMO
  • More affordable premiums
  • Fewer plans with deductibles
  • Care coordinated via PCP
  • No extra fees for in-network care
  • Least flexible
  • Referrals required for specialists or physicians other than PCP
  • Coverage does not travel if you are away from home
PPO
  • Most flexible
  • No referrals required
  • Access to more services
  • Travels with you when away from home
  • Highest prices
  • Annual deductibles
  • Members are responsible for coordinating their own care
POS
  • More freedom and flexibility than HMOs
  • Low co-pays and fewer deductibles than PPOs
  • Care coordinated via PCP
  • Access to out-of-network services
  • Less flexibility than PPOs
  • More expensive than HMOs
  • Likely to require referrals for most services
  • More paperwork
  • Must pay any fees for out-of-network care up front
EPO
  • Lower premiums and out-of-pocket costs than PPOs or POS
  • Expanded in-network care vs. HMOs
  • Less likely to require referrals than HMOs
  • Higher premiums and out-of-pocket costs than HMOs
  • Limited access to out-of-network services
  • Likely to be responsible for deductibles

As you can see, the options for managed care plans exist on a spectrum, from the low-cost, rigid features of an HMO to flexible, higher-priced PPO plans. When exploring any healthcare plan, it’s important to find the solution that best fits your unique needs.

6 Degrees Health Manages Healthcare Costs

For over a decade, 6 Degrees Health has been an industry leader in healthcare cost containment solutions. We are not an insurance company. Instead, we offer alternative healthcare models and reimbursement methods, like reference-based pricing, that differ from traditional managed care.

Our solutions for self-funded plans range from total network replacements to wrap-around services paired with existing insurance to lower healthcare costs. We work with third-party administrators (TPAs) and brokers to help employers lower their healthcare spend by up to 40% and improve access to quality care for their employees.

Interested in learning more about managed care in healthcare? Speak to a representative today to find out how our reference-based pricing model can help you realize the true costs of healthcare.

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