Medicare Managed Care
The Health Insurance for the Aged and Disabled Act, better known as "Medicare," strives to make health insurance available to nearly every American 65 years of age and older. Medicare services come in two basic types, "fee-for-service" and "managed care". In theory, managed care attempts to consolidate and coordinate all of a patient's health care services into a single network in order to maximize benefits and minimize costs. Managed care is provided by groups such as HMOs, PPOs, etc., and has become the preferred method of coverage because of the potential cost savings that it offers. Who it saves money, however, is worth learning more about.
Who Saves Money and Who Makes Money under Medicare Managed Care
There are four basic players in the managed care system: the government, the insurance company, doctors, and the patient.
- The Government: As part of the Social Security Act, the government is the big spender in providing Medicare. The Medicare program pays most of the insurance premium in these plans, and, in theory, has the most to gain in terms of cost savings. This is not always the case, however, because managed care only lowers the price of the health care service (how much it costs to visit the doctor), which is a cost borne by the insurance company, not the government. This means that the true cost savings of managed care pass directly to insurance companies, who may or may not pass on the savings to the government through insurance premiums.
- Insurance Companies: Insurance companies are the greatest beneficiaries of managed care. Because managed care focuses on lowering the cost of the actual service, insurance companies are the first party to really see a cost savings. Like any business, when an insurance company lowers the costs of doing business, this results directly in larger profits. So why would an insurance company pass on its profits in the form of lower premiums?
The assumption that managed care rests on, is that rather than keep these larger profits, insurance companies will instead lower their premiums because if they don't, someone else will. In other words, competition will drive down prices. However, that's a huge assumption that doesn't always prove true in practice. The most obvious problem is that, in many areas, there is little or no competition between managed care plans. Managed care programs do, however, often result in at least some lowering of insurance premiums, even if it is not as much as would be expected.
- Doctors and Hospitals: Doctors and hospitals stand in the middle, and typically will end up losing money because they have to negotiate with larger and more powerful insurance companies. In theory, becoming part of a large plan will drive more patients their way, but the extra volume almost never compensates for the reduced prices. As a result, many doctors and hospitals have dropped out of managed care plans altogether, deciding they weren't being paid enough for their services. The end result is fewer options for patients, and greater profits for insurance companies.
- Patients: The last in line for any possible savings is the patient. Managed care does often result in somewhat lower premiums, but the true "cost" is debatable because of the tradeoffs that come with it. Paying less money for fewer services is not necessarily really saving any money. For example, most managed care programs require the patient to see a primary care physician before seeing a specialist. The idea is that money is wasted seeing a specialist if a primary care physician can provide care at a cheaper rate. This can result in more doctor visits, longer wait times, and a potentially lower quality of care. Another major component of "cost saving" is in reduced hospital stays. Again, it's questionable whether this is really any savings to the patient, where his or her reduced premium simply results in less treatment and face-time with the doctor.
Choosing a Medicare Managed Care Plan
Whether or not Medicare's managed care makes sense for you depends on a variety of factors, which is why it's important to understand who is really benefitting from the managed care system. Ideally, well-run managed care systems can benefit everyone. The government can save money, insurance companies and doctors can still profit, and patients pay less for healthcare. In some areas, managed care has been successful in delivering on this promise. In other areas, however, no one is really benefitting other than the insurance companies.
Accordingly, it pays to explore the managed care opportunities available in your community. Pay especially close attention to premium and co-pay prices and see whether they make sense given the benefits and limitations of the plan, such as doctor choices, specialist referrals and hospital stays. Finally, compare your managed care options against more traditional "fee-for-service" options available under Medicare and choose the plan that works best for you.