Managed care plans – what they are and what you need to know

If you have health insurance, you most likely have a managed care plan, even if you’ve never heard the term before. Managed care plans are the majority of health insurance plans in the United States, but what exactly are they?

What is a managed care plan?

Managed care plans are health insurance plans with the goal of managing two major aspects of healthcare: cost and quality. With these plans, the insurer signs contracts with certain health care providers and facilities to provide care for their members at a reduced cost. These providers and facilities all have to meet a minimum level of quality. Besides having healthcare providers agree to certain prices for medical care, managed care plans also attempt to reduce healthcare costs by focusing on preventive care and by using financial incentives such as charging less for generic drugs than branded ones.

These plans first gained popularity in the late 1970s and early 1980s and now represent a big chunk of the American healthcare system. Different types of managed care plans have different networks, and typically the more options in a network, the more expensive the insurance premium.

What are some examples of managed care plans?

The most common type of managed care plan is the HMO. If you enroll in an HMO plan, you’ll need to pick a primary care provider who will direct all your healthcare needs and refer you to specialists when appropriate. You are only covered if you go to medical providers and facilities who are in your network.

Because of the network limitations, HMOs tend to be cheaper than the other popular type of managed care plans: PPOs. With a PPO, you can go to both in-network and out-of-network healthcare providers and hospitals and you don’t need to have a primary care provider or referrals to see specialists.

A third type of managed care plan is the POS, which is a hybrid of an HMO and a PPO. With a POS, you have to pick a primary care provider as with an HMO, but you also get to visit out-of-network providers as with a PPO.

Which type of managed care plan should I pick?

Healthcare is a personal decision and which type of health insurance you choose depends heavily on your medical needs and personal preferences. Each type of managed care insurance has pros and cons.

Do you like having one point-of-contact for your medical needs? Will you need to see specialists on a regular basis? Do you travel often? Is there a particular healthcare professional you already like and want to continue seeing? These are all questions you should ask yourself before picking a plan.

Once you have an idea of which type of plan may fit your healthcare needs the best, compare your options and the associated costs with HealthSherpa’s tool.

What other health insurance options are there besides managed care plans?

Managed care plans are now the majority of health insurance plans in the U.S. The main alternative is the traditional indemnity health plan, also known as fee-for-service plans.

Unlike managed care plans, there are no provider networks with indemnity plans. Instead, you can choose your own doctors and hospitals. These healthcare providers set their own rates, and your plan covers a predetermined percentage of the charges (determined per service). You are responsible for paying the rest.

Fee-for-service plans can be good for individuals who want complete freedom to see whichever medical provider they want. They can cause the medical bills to pile up, however, as healthcare providers are incentivized to increase the number of services provided in order to collect more fees. In addition, most indemnity plans are not compliant with the Affordable Care Act. That means you may not have some essential health benefits and may be liable to pay the tax penalty for not having a qualified health insurance plan.

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