Managed Health Care

Of the approximately 257.8 million individuals currently living in
the United States of America, every one of them has a need for
effective, affordable and accessible health care coverage and
services. Within the past thirty to forty years, the scope and
cost of health care coverage and services has drastically changed,
altering the manner in which health care was previously managed.
There are several factors that have affected the cost of health
care coverage over the course of the past two to three decades.
One of these factors is the introduction and rapidly increasing
enrollment in managed health care insurance plans. Managed care
health insurance plans can, in most cases, help to alleviate the
rising costs of effective medical coverage. Another important
factor that has affected health care costs is the invention and
implementation of new medical technologies. As prominent
researchers and economic analysts have discovered, there is a
distinct and direct correlat! ion between advancing medical
technologies and rising health care costs. Medical innovation has been
proven time and again to be an important determinant of health care
cost growth. It would appear that managed care health insurance plans,
which attempt to lower health care costs, and highly expensive new
medical innovations and procedures are at cross purposes, pulling
against one another in very different directions. Market-level
comparisons have found the cost growth of health care in markets with
greater managed care penetration to be generally slower than that of
non-managed care health insurance markets. However, managed care is
unlikely to prevent the share of gross domestic product spent on health
care from rising unless the cost-increasing nature of new medical
technologies changes.
Managed care health insurance plans differ greatly from
indemnity fee-for-service, or FFS, insurance plans. Since the
early 1970\'s, rapidly growing enrollment in managed care health
insurance plans has transformed the health insurance market in
the United States. Virtually nonexistent in most markets three
decades ago, managed care health plans covered 63 percent of
the nation\'s employees by 1994. Managed care incorporates a
range of features that allow the insurer greater influence in
the process of care delivery. Managed care plans aggressively
contract for lower prices from physicians and hospitals and
attempt to constrain the use of health care services by
monitoring providers and changing provider incentives. Health
insurance providers that operate under the fee-for-service
concept grant the consumer much more freedom of choice
concerning doctors and treatment programs, thus freeing the
consumer of any feelings of discontent with "interfering"
insurance companies. ! Consumers of indemnity plans, however,
pay a price for that freedom by way of drastically higher rates and
little knowledgeable input on doctors, specialists and nearby hospitals
that will fit their particular needs. Many of today\'s health insurance
consumers choose to place their trust in a managed care insurance
company, relying on the expertise of the provider to support and
facilitate their various medical treatments and needs. Health
maintenance organizations, commonly known as HMOs, have emerged as the
clear leader of managed care providers. Other types of managed care
plans include preferred provider organizations, point of service plans
and managed indemnity plans. Most studies focus on HMOs and so do not
describe variation in the type of HMO or in the extent of the level of
management in non-HMO plans. HMOs have effectively reduced health care
expenditures (Miller and Luft 1994; Manning et al. 1987; Luft 1981).
A natural assumption would be that the quality of ! care would be
lowered as insurance rates go down and remain reasonable and
affordable. However, these cost savings have been achieved, according
to most evidence, without significant reductions in the quality of care
(Carlisle et al. 1992; Retchin and Brown 1991, 1990; Sloss et al.
1987; Ware et al. 1986; Greenfield et al. 1995; Miller and Luft
1997). This suggests that managed care health insurance plans -HMOs in
particular- tend to reduce inefficiencies in the health care system.
In fact, a study that examined changes in hospital expenses in
California found as much as a forty-four percent slower rate of
hospital care cost growth in markets with high HMO penetration relative
to markets with low HMO penetration (Robinson 1991, 1996).
There are two main types of services that managed care health
insurance companies use to categorize and label their
treatments and procedures. These categories are known as
complementary services and substitutive services. These two
terms apply to new innovations in medical technology and the
amount of money spent to provide the technology to the
consumer. Complementary services are those whose use increases
with the use of the new technology. Complementary services are
attractive to the consumer, who, understandably, desires the
latest, most effective medical technology to treat themselves
and their loved ones. For example, suppose an