Managed Care

Managed care is a complex system that involves the active coordination of and arrangement for the provision of health services and the coverage of health benefits. The term managed care was coined in the 1980s to name the array of emerging health insurance products that were evolving in response to skyrocketing healthcare costs. To differentiate these new products from traditional insurance, commercial insurers adopted the generic term managed care to describe health benefit products that attempted to control the cost of care by restricting the choice of providers or the use of medical services. Today, it encompasses a broad spectrum of organizational structures and benefit plans such as (a) health maintenance organizations (HMOs), (b) preferred provider [Page 704]organizations (PPOs), (c) point of service plans (POS), (d) individual practice associations (IPAs), (e) exclusive provider organizations (EPOs), and (f) consumer-directed healthcare (CDH).

The exact nature of managed care is constantly evolving in response to the changing demands of consumers, employers, and regulators. There are three key components of managed care: (1) the network or contractual relationship with healthcare providers, (2) the oversight or coordination of medical care, and (3) the structure of the covered healthcare benefits and copayments. Early managed-care plans were nothing more than networks of providers who agreed to accept lower reimbursements to be included in a plan's network of preferred providers: hence, preferred provider organizations or PPOs. There were benefits or financial penalties if the insured did or did not use a preferred provider. Later on, managed-care organizations added medical-management initiatives such as preauthorization of services and mandatory second opinions. In response to rising political pressures, medical management has evolved away from prior authorization to focus more on care coordination and disease management. Recently, financial incentives and disincentives have taken the forefront in efforts to influence healthcare costs, taking the form of CDH. CDH uses an array of benefit designs with higher copayments, higher deductibles, or both to empower consumers to more effectively manage their healthcare.