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Home Knowledge CenterWhat is Managed Care?

What is Managed Care?

If you have a health plan, chances are you have a managed care plan.

The term “managed care” is used to describe a type of health care focused on helping to reduce costs, while keeping quality of care high.

The most common health plans available today often include features of managed care. These include provider networks, provider oversight, prescription drug tiers, and more. These are designed to manage costs for everyone without sacrificing quality care.

What is an example of a managed care plan?

A good example of a managed care plan is a Health Maintenance Organization (HMO). HMOs closely manage your care. Your cost is lowest with an HMO. You are limited to seeing providers in a small local network, which also helps keep costs low. You are also required to have a Primary Care Provider (PCP) who coordinates all your care. There are a few other common health plans that fall into this category as well.

What is a managed care organization?

A managed care organization (MCO) is a health care company or a health plan that is focused on managed care as a model to limit costs, while keeping quality of care high.

What are the features of managed care plans?

The following are the most common characteristics included in many popular health insurance plans. These are examples of managed care:

  • Provider networks: Health insurance companies contract with groups of providers to offer plan members reduced rates on care and services. These networks can include doctors, specialists, hospitals, labs, and other health care facilities. Some health plans require you to use the plan’s provider network to be covered for your care. For example, HMOs require you to see network providers to be covered by the plan. In return, the cost you pay is typically much less.

  • Preventive care incentives: Managed care plans typically focus on making preventive care a priority. Most preventive services, such as annual check-ups, routine screenings, and certain vaccines, are covered at 100% by your health plan. Why? Regular check-ups help doctors identify health problems early, before they become major and costly. No-cost preventive care is a big incentive for plan members to try and maintain good health.
  • Primary Care Providers (PCP): Your health plan may require you to choose a PCP if you don’t already have one. You may be required to see your PCP first before going to any other doctor or specialist. As part of a managed care system, this makes your PCP key in helping coordinate all your health care. If you need more specialized care or treatment, your PCP can refer you to the right specialists and facilities, often in the same network. This also helps to manage your care.
  • Prior authorization: Most managed care plans require you to get approval before you have certain types of procedures or treatments done, or are prescribed certain types of specialty medications. This is called prior authorization, precertification, or preapproval, depending on your insurer. Part of managed care’s goal is to help ensure you are not receiving treatment or medications you may not need. It’s also a way for the insurer to manage costs for expensive tests, surgeries, or specialized medications. Quite often, as part of a prior authorization, your insurer will ask for additional information from your provider before deciding to approve it or not. This helps them understand the medical need for a more costly treatment, a certain surgical procedure, or a specialty medication, for example.

  • Prescription drug tiers: If you have prescription coverage, your health plan may provide more coverage for generic medications than brand names. This is another common feature of managed care plans. Generics typically have the same formula and the same active ingredients, but they cost much less. This furthers the goals of managed care, which is to help keep costs lower, while still ensuring you receive quality care and equally effective medications.

What are types of managed care plans?

Here are the basic types of managed care organizations or plans:

  • Health Maintenance Organization (HMO) manages care by requiring you to see network providers, usually for a much lower monthly premium. HMOs also often require you to see a PCP before going elsewhere, and do not cover you to see providers outside the network. Preventive care is covered at 100%. HMOs cost less, but offer less flexibility.
  • Preferred Provider Organization (PPO) gives you the option to see any doctor you like, in- or out-of-network. You may pay less in-network, though. There may be no requirements to get referrals from a PCP, either. Again, most preventive care is covered at 100% emphasizing routine health care as a means to lower health care costs now and in the future. For this flexibility, your costs are usually higher.
  • Point of Service (POS) plans are a hybrid of HMOs and PPOs. You get the flexibility to see in- or out-of-network doctors like a PPO, but your share of the costs will be higher. Like an HMO, you may be required to see a PCP to manage your care and provide you with referrals. Goal of a POS is similar—offer you options, while still managing to keep costs lower.
  • Exclusive Provider Organization (EPO) plans also combine features of HMOs and PPOs. Like a PPO, you may not be required to see a PCP or get a referral, but like an HMO you are often required to see in-network doctors to be covered. Cost for an EPO plan is usually higher than an HMO, but less than a PPO.

Learn more about HMOs, PPOs, and EPOs

How does managed care work?

The primary way in which managed care plans work is by establishing provider networks. A provider network serves plan members over a certain geographic area in which the health plan is available. The providers in these networks agree to offer their services at reduced costs. Your health plan pays more of the cost of your care if you see providers in the network. In fact, some plans will not cover you at all if you go to a doctor out-of-network.

Are HMOs and PPOs managed care plans?

Both HMOs and PPOs are examples of managed care plans. An HMO is much more limited in how you can use it, but it also offers you the lowest cost. For example, you must see doctors within the plan’s network to be covered—no flexibility.

For a PPO, you have the option to see doctors outside the network and still be covered, but you will save money if you see in-network doctors. A PPO also costs a bit more than an HMO for that flexibility. Both types of plans are designed to help keep costs lower and quality high.

Managed care is a type of health care model that is commonplace. Most common types of health plans have features of managed care that help keep costs in check and quality of care high.

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This information is for educational purposes only. It is not medical advice. Always consult your doctor for appropriate examinations, treatment, testing, and care recommendations.

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