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Kids and Health Care: How Managed Care Works Introduction

Managed care programs are usually the most cost-effective form of medical coverage -- and this cost advantage grows substantially when a family has more than one child. The bad reputation that managed care programs have for limited options and bureaucratic paperwork is often exaggerated. Starting in the 1980s, rising health care costs forced insurers and providers to reorganize the medical delivery system in the U.S. To accomplish this, they turned to managed care.

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 you.

Managed care got a bad reputation in the late 1980s and early 1990s because of some highly-publicized abuses related to HMO cost-saving measures. Among these abuses: plans that refused to let members see medical specialists; paperwork so confusing that one doctor couldn't refer a member to another doctor; financial bonuses paid to doctors who denied legitimate care; "gag" clauses in employment contracts that prohibited doctors from discussing expensive treatments; and, most infamously, so-called "drive-through" baby deliveries and mastectomies -- in which women were sent home before they had recovered.

In short, under managed care, doctors' compensation is often directly proportionate to how little they do. Bonus plans reward doctors who order fewer expensive services. So, critics say, doctors in managed care are more likely to advise against costly interventions that might benefit the patient.

Beginning in the 1990s, political groups in Washington, D.C. started lobbying for various versions of a so-called "Patients' Bill of Rights" to be passed into law. While the different plans included specific details of their own, they tended to share some basic points.

The proposals tended to eliminate many of the cost-control mechanisms that managed care plans use to keep their coverage less expensive than traditional indemnity insurance. Among the common targets: gatekeeper referral systems, appeals boards made up of administrators (rather than doctors) and restrictive lists of approved providers. These proposals created enough concern in managed care circles that most plans voluntarily made the changes.

Indeed, some HMOs did place strict limits on the amount of time a mother could stay in the hospital after giving birth. Rage over these limits resulted in a 1995 federal law mandating that new mothers have the option to stay in the hospital for 48 hours after delivery.

In the mid-1990s, the American Medical Association called on all managed care plans to cancel "gag" clauses in their contracts or policies with physicians. A few months later, the American Association of Health Plans (AAHP), a national trade group based in Washington, D.C., that represents roughly 1,000 managed care plans, announced its adoption of a similar program to urge the strengthening of the patient-physician relationship.

The so-called "gag" rules are a way for managed care organizations to discourage discussion between physicians and patients regarding treatment options that managed care organizations do not want to cover (usually more expensive and non-traditional methods of treatment). The rules initially were intended to prevent the physician from criticizing the managed care organization.

The 1997 HIPAA, more commonly known as the Kennedy-Kassebaum Act, formalized some reforms.

The net effect: Managed care plans offer more flexibility -- and, generally, aren't so restrictive -- as they were in the 1980s and early 1990s.

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