Is Managed Care Really Dead? Today, agents andbrokers are running up against health plan costs that continue torise at a double-digit pace. Clients want to know exactly whattheir options are now, and what to expect in the future.

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The History

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A little background about the evolution of managed health caremight help put things in perspective.

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Most of us remember when we all had straight“indemnity” medical plans. These plans allowed total freedom ofwhat hospitals we used and when, without worrying about paying moreor being penalized.

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We might also remember the advent of the health maintenanceorganizations. Those were the plans we loved to hate. They onlyoffered a few hospitals and physicians, had no benefits if we didnot use their particular providers, and required that we pickedphysician “gatekeepers.” The one thing they did do well was offer avehicle for controlling costs.

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When reviewing the restrictions of HMOs, it is easy to see whypreferred provider organization plans became popular. PPO planparticipants could choose whether to use the network provider. Iftheyd go out of network, the financial penalty wasnt a majorissue.

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The original premise of the PPO was quite simple: Physicians andhospitals discounted their fees for medical services in exchangefor participation in health plans that would steer additionalpatients to them; buyers of medical services limited the number ofphysicians they offered in their plans; and for that, the sellerswould give a “volume” discount.

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It was a very straightforward business proposition. Providershad to see real patient shifting and quantifiable increases inrevenues, and they expected exclusivity. This was the embryo stageof managed care, and the medical community was squarely in thedrivers seat. From the network negotiators perspective, the logicalstep to enhance the purchasing power of the health care buyers wasto make the networks as small as possible.

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As we reached the 1990s, more and more networks appeared. Thosewho paid for medical services realized solid savings, and themedical community felt the increased business they received wasworth the discounts they offered. But as networks got bigger andbigger, providers were not getting the increased patients theyexpected. Many began asking, “What happens when every provider isin every network?”

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Networks Evolve

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Health care buyers had gained the negotiation edge, and “thebigger the better” became the network development battle cry.Providers started joining all the networks they possibly could.

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By this time, buyers had almost total control of managed careand hospitals and physicians were divided, continuing to view eachother as “competitors.” It took some time, but eventually everyhospital and physician was, in fact, in every network known tomankind. All resemblance of the original premise of managed carehad vanished.

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By the end of the 1990s, the concept of medical networks startedto come full circle. Physicians and hospitals finally consolidatedand began to push back.

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The New Generation

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The millennium came, and with it skyrocketing health care cost.We all heard that managed care was dead and that PPO discountlevels had evaporated. Almost everyone asked, “What do we donow?”

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During this time, the original logic of medical networksreappeared and the term “point of service” made its debut.Point-of-service plans, or POS plans, typically have smallernetworks, but not as small as HMOs. POS plans also havegatekeepers, but not the rigid gatekeepers of the HMO era.Considering there are also out-of-network benefits, a POS could bethought of as HMO “light”.

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Since smaller networks equal more provider exclusivity, networknegotiators could again bargain for deeper discounts and pass onthose savings via lower overall benefit plan costs.

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Now we have consumer-driven health care. Consumer-driven plansgive employees greater control over their low-end health careexpenses, and they also give some relief to employers from thespiraling costs of health coverage.

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Success of this concept hinges on the belief that people willspend their own money more wisely then someone elses. But for theseplans to work, employee access to a contracted medical network isstill a necessity.

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Employers need to work with experienced agents or brokers whocan help them develop the optimal employer strategy to controlcosts, which is to offer employees a choice of both PPO and POSplans, and make it as financially attractive as possible for thosewho choose the latter.

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Is managed care dead? Absolutely not. Without a doubt, it willcontinue to be the foundation of all future health plan designsbecause without it, we have no idea how expensive health care canreally get.

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Dennis Baker, CLU, MSFS, is the employee benefits practiceleader at Kaye Benefits Consulting, a division of Kaye Group Inc.,New York. The Kaye Group is a Hub International Limited Company.Baker can be reached at [email protected].


Reproduced from National Underwriter Edition, April 7, 2003.Copyright 2003 by The National Underwriter Company in the serialpublication. All rights reserved. Copyright in this article as anindependent work may be held by the author.


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