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Blog, Education
November 18, 2022

Pros and Cons of Managed Care in Healthcare

4 minute read
A doctor holds a stethoscope to a piggy bank behind stacks of coins to show potential savings from understanding pros and cons of managed care.

When we think of healthcare in the United States, we typically think of employer-sponsored health insurance plans. This is because roughly 54% of all Americans receive healthcare via private insurance through their employers, according to Statista. Although this level of access and overall performance places U.S. healthcare well behind most other high-income nations, it’s what we’ve come to accept as normal.

The high cost of services remains one of the biggest problems in our healthcare system. In private health insurance plans, the most common healthcare delivery method—called managed care—attempts to lessen costs and improve access to care. While it offers some advantages, it also comes with a few caveats. This article discusses the pros and cons of managed care.

What Is Managed Care?

The managed care model relies on networks of healthcare providers to help manage the cost and quality of medical services available to patients. Typically, managed care networks limit the ways patients can navigate them, and leverage payment structures like deductibles, copays, and monthly premiums to keep costs down.

Contracts with designated medical providers and hospitals in specific locations facilitate the network with which a managed care plan operates. Such plans usually require members to seek care within their network to receive the baked-in discount on medical services.

Managed care plans come in a wide variety of flavors, but the most common configurations of managed care include:

PPO: PPOs, or preferred provider organizations, also rely on a provider network for healthcare services. Because these networks have few restrictions—i.e., members are neither obliged to see a primary care physician (PCP) for in-network treatment nor do they need referrals—they provide more flexibility than HMOs.

HMO: HMO (health maintenance organizations) plan members must select a primary care physician (PCP) to manage their healthcare requirements and seek medical care only from specialists in their network. In most cases, patients who require medical attention must first contact their primary care physician, who then provides them with a referral to see a specialist or another physician.

POS: Point of service (POS) plans are like a hybrid of the first two, or something in between PPOs and HMOs. Like HMOs, they require members to obtain PCP referrals before seeing any specialists. However, they can also increase your healthcare alternatives by allowing out-of-network care in return for a slightly higher premium.

EPO: Similar to HMOs, exclusive provider organizations (EPO) limit coverage to in-network services. However, their networks offer access to a considerably wider selection of providers. In addition, EPO members are less likely to need PCP referrals to see specialists. This is another way to expand care beyond what HMOs can provide without paying PPO-level premiums.

As you can see, when comparing the most common managed care plans, there is a direct relationship between flexibility and cost. The most affordable plans usually have more limitations than other options and can be rigid and difficult to navigate. Conversely, plans with few network limitations often cost significantly more.

Pros and Cons of Managed Care

While managed care is the most common healthcare delivery system, it is not the only option, nor is it the best. Additional healthcare alternatives could prove to be more beneficial, depending on individual situations. Just as comparing different types of managed care plans can help you find the best solution, understanding the pros and cons of managed care, in general, can provide a more complete picture of your healthcare options.

Pros  Cons
Network restrictions can lower healthcare costs for members. Patients pay discounted rates for care received within the provider network. Severely limits options for coverage: care must be performed in-network to receive coverage and discounts.
Providers in your network can exchange documents and medical files quickly. With the patient’s consent, files are readily accessible to any network provider. Patients report feeling like they are treated as products. Contracts with health insurance companies incentivize providers to over utilize services like testing and screening.
Networks send information directly to in-network pharmacies to simplify prescription management. Patients only need to pay for and pick up prescriptions. Some managed care plans require patients to do a fair bit of paperwork. Members schedule their own appointments and follow-ups, etc., reinforcing a system in which patients must advocate for themselves.
Receiving in-network care can be quick, depending on the type of managed care plan and how busy it is. For example, because PPOs do not require referrals, patients can book their own appointments for services immediately. Busy networks often mean long waits before members can receive care. Because of network restrictions,

a shortage of doctors or an overload of patient requests makes it difficult for members to schedule simple checkups or vaccinations.

A Better Alternative

Now that you know the pros and cons of managed care, it’s important to be aware of alternative healthcare models that could resolve some of managed care’s significant drawbacks.

Healthcare reimbursement models like reference-based pricing offer patients much more flexibility than traditional managed care plans and provide significant savings to patients and employers alike.

As opposed to managed care, reference-based pricing is not health insurance. Instead, it is a cost containment model that utilizes a benchmark—or reference point—based on a database of aggregated prices for similar medical services. Brokers and third-party administrators (TPAs) can also use this benchmark to negotiate more reasonable prices for medical services from healthcare providers instead of accepting charges without question.

Because provider contracts do not restrict reference-based pricing the way they restrict managed care, this non-traditional model offers more flexibility and the potential for better quality care from out-of-network services. Reference-based pricing is also far less limited in its approach to reimbursement.

Insurance companies often pay claims to providers in full—without any negotiation—because their profits are contractually guaranteed. Afterward, insurance companies expect members to pay reimbursement fees. In contrast, a reference-based pricing model essentially cuts out the middleman to negotiate directly with providers, which can result in impressive savings.

One of the most attractive features of reference-based pricing is that selecting this alternative does not require a full replacement of any existing managed care plans. Instead, it can be used alongside managed care to fill any gaps in coverage (like out-of-network services).

6 Degrees Health for Effective Cost Containment Solutions

6 Degrees Health was founded by industry veterans with a shared vision of making healthcare more affordable and transparent. That’s why we work with third-party administrators (TPAs) and brokers to help employers tip the balance of healthcare back in their favor.

Our data-driven cost containment solutions like reference-based pricing are backed by powerful, proprietary benchmarking software that creates an effective salve for profits cut by healthcare costs. With our reference-based pricing solution, employers and their employees will save money and have greater access to higher-quality healthcare.

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

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