Merritt Personal Lines Manual: Health Insurance: Managed Care HMOs, PPOs and Similar Programs Introduction

The broad health coverage provided by traditional insurance plans provides little incentive for efficient cost-effective health care delivery. Starting in the 1980s, it became clear that too much money was being spent on health care in the United States. One response from insurers and providers was to reorganize the health care delivery system into a form of managed care.

Managed care plans provide comprehensive health services to their members and offer financial incentives for patients to use providers under contract with the plan. That's how managed care plans keep their costs low. Instead of paying for each service that a patient receives separately, the plans pay providers in advance. That's why insurance professionals call these plans prepaid care.

HMOs have been in existence for many years. However, their popularity increased dramatically after the passage of the Health Maintenance Organization Act by the federal government in the late 1970s.

Managed care imposes controls on the use of health care services, the providers of health care services, usually through health maintenance organizations (HMOs) or preferred provider organizations (PPOs).

Managed care plans can be organized as for-profit (commercial) corporations or non-profit corporations. In most scenarios, however, a managed care plan is a for-profit corporation with responsibilities to stockholders that take precedence over responsibilities to the insured. The HMO directly and indirectly controls the amount of health care that the doctors in its network are allowed to provide to the insured.

What's worse is that, if the insured switches insurance to a managed care plan and the insured's personal physician isn't in the network, the insured probably can't continue to go to the same doctor. And, even if he or she is a member, the insured's office visits still may be restricted -- particularly if the insured's doctor is a specialist.