Prior to the 1970s, the dominant health insurance plan was the fee-for-services model. This model is based on a system in which fees are paid by consumers to physicians who are usually in private practice. Insurance policies informed consumers of their benefit coverage for procedures such as radiology services, medical testing, mental health services, hospitalizations and many other services. Neither doctors, nor consumers, needed prior authorization from their insurer for treatment under this model. This system would be analogous to a free enterprise model in economics.
President Richard Nixon persuaded Congress to pass the HMO Act of 1973. This act ultimately changed the delivery of health care services. Health maintenance organizations were developed as a reaction to increasing health care costs, and by the 1970s the federal government, insurers and employers were looking for a way to contain these costs. More recently, the term managed care has come to replace the term health maintenance organization. There are many ways in which to define managed care. However, the best definition appears to come from the Congressional Budget Office. "Managed care involves a variety of interventions in health care delivery and financing intended to eliminate unnecessary and inappropriate care and to reduce cost. These include reviewing and intervening in decisions about health services to be provided, either prospectively or retrospectively; limiting or influencing patients' choice of providers; and negotiating different payment terms or levels with providers." In practical terms, what this means for consumers is often restricted, inadequate care, with providers constantly asking for intrusive assessments and regulating treatment from beginning to end.
References
Broskowski, A. (1991). Current mental health care environments: Why managed care is necessary. Professional Psychology; Research and Practice, 22(1), 6-14.
Metzl, J. M. (1998). Psychotherapy, managed care, and the economy of interaction. American Journal of Psychotherapy, 52(3), 332-351.
Mitka, M. (1998). A quarter century of health maintenance. Journal of the American Medical Association, 280(24), 2059-2060.
Mizrahi, T. (1993). Managed care and managed competition: A primer for social work. Health and Social Work, 18(2), 86-91.
Rimler, G. W. & Morrison, R. D. (1992). Managed care: The solution or the problem? Compensation and Benefits Review, 24(3), 38-48.
Some Helpful Definitions
Fee-for-Service Insurance--Under this type of insurance, you can choose any licensed physician to be your personal doctor, and you can use the services of any hospital or other health care facility. This type of insurance is usually more expensive; there is little or no coordination of care; preventive care is usually not covered; and there are claim forms to file.
Managed Care Organization (MCO)--This is an umbrella term referring to the combination of the delivery of health care services with the financing of that care.
Health Maintenance Organization (HMO)
Staff Model--There is a centralized facility where care is provided and coordinated. This means that all your doctors, as well as laboratory and x-ray services are located in one medical facility. Under this model you must choose a primary care physician.
Individual Practice Associations (IPAs)--This is a less restrictive form of an HMO. Individual physicians practice in their own offices and are under contract to a separate group, called an IPA that, in turn, contracts with an HMO. The HMO provides you with a list of participating physicians from which you may choose your primary care doctor. If you require specialty care, your primary care doctor refers you to a participating specialist.
Point of Service (POS)--These plans permit members greater choice and flexibility by allowing you the option of going "out of the plan" to use non-HMO providers. If you "go out of plan," you must pay more, typically in the form of higher coinsurance and deductibles.
Preferred Provider Organization (PPO)--These are networks of doctors and hospitals that have agreed to give the sponsoring organization (for example, an employer or an insurance company) discounts on their usual rates. You will pay more out-of-pocket costs if you use physicians or hospitals outside the PPO network. There is considerable variation among PPOs with respect to how they operate. Some PPOs use primary care physicians as gatekeepers. In other PPOs, you may choose your own doctors and visit specialists without permission from a gatekeeper. PPOs offer you the greatest freedom among managed care plans in selecting health care providers, but PPO premiums are usually somewhat higher than HMO premiums and there is less coordination of care.