Is Managed Care Really Dead?

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

The History

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

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

We might also remember the advent of the health maintenance organizations. Those were the plans we loved to hate. They only offered a few hospitals and physicians, had no benefits if we did not use their particular providers, and required that we picked physician “gatekeepers.” The one thing they did do well was offer a vehicle for controlling costs.

When reviewing the restrictions of HMOs, it is easy to see why preferred provider organization plans became popular. PPO plan participants could choose whether to use the network provider. If theyd go out of network, the financial penalty wasnt a major issue.

The original premise of the PPO was quite simple: Physicians and hospitals discounted their fees for medical services in exchange for participation in health plans that would steer additional patients to them; buyers of medical services limited the number of physicians they offered in their plans; and for that, the sellers would give a “volume” discount.

It was a very straightforward business proposition. Providers had to see real patient shifting and quantifiable increases in revenues, and they expected exclusivity. This was the embryo stage of managed care, and the medical community was squarely in the drivers seat. From the network negotiators perspective, the logical step to enhance the purchasing power of the health care buyers was to make the networks as small as possible.

As we reached the 1990s, more and more networks appeared. Those who paid for medical services realized solid savings, and the medical community felt the increased business they received was worth the discounts they offered. But as networks got bigger and bigger, providers were not getting the increased patients they expected. Many began asking, “What happens when every provider is in every network?”

Networks Evolve

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

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

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

The New Generation

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

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

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

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

Success of this concept hinges on the belief that people will spend their own money more wisely then someone elses. But for these plans to work, employee access to a contracted medical network is still a necessity.

Employers need to work with experienced agents or brokers who can help them develop the optimal employer strategy to control costs, which is to offer employees a choice of both PPO and POS plans, and make it as financially attractive as possible for those who choose the latter.

Is managed care dead? Absolutely not. Without a doubt, it will continue to be the foundation of all future health plan designs because without it, we have no idea how expensive health care can really get.

Dennis Baker, CLU, MSFS, is the employee benefits practice leader 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 dbaker@kayegroup.com.

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