Insurance Continuing Education - Managed Care

In any type of health insurance, the determining factor regarding pricing, plan development, forecasting and eventually, controlling costs, is utilization, i.e. how much and how often the system is used. The more health insurance is "utilized", the more expensive it becomes, as benefits must be provided by health providers who must be compensated for their services. The first real Managed Care program developed solely for the purpose of containing medical care costs, was utilization review, i.e. reviewing how often and how much the system was used. This system attempted to determined whether hospitalization was proper for the particular health situation, whether the medical care was proper. It proposed alternate medical services on occasion, and also helped to determine the length of hospital stays.



The first major use of a utilization panel was in 1972, when the federal government crated panels in an attempt to provide quality medical service to Medicare beneficiaries on a cost-effective basis.



In 1973, the Health Maintenance Organization Act inserted the federal government into the insurance business which was considered the domain of States’ Departments of Insurance. In effect, it "legitimized" the HMO concept by requiring any employee groups of 25 or more employees that is provided health insurance by the employer, must include an HMO as an alternate provider of health services. This stimulated the growth of HMO’s but were not popular with employees because of the limited number of health care providers available.



Coincidentally, medical care costs were rising rapidly due to continuing inflation, so health insurers watched the growth of the HMO concept with increasing interest. However, with the eventual of the HMOs due to limitation of health providers, the insurers introduced the Preferred Provider Organization (PPO) which help to contain medical costs.



The cost savings concept of the PPO was simply that there would be savings in medical care because of the discounted fees of the network providers. However, it did not take long for many of the hospitals and health providers to realize that if their fees were cut, then an increase in utilization would put the money back in their pocket. As an example, doctors may charge 80% of their usual fees to PPO patients, but if it would normally take 4 visits to conclude medical treatment, it would be extended into 5 visits. Hospitals would keep people in the hospital longer to make up for any discounted fees, with the result that savings would be generated by discounted fees to providers that would join the network. However, overutilization more than offset any such savings through discounts. Example: A hospital might give a 25% discount to PPO patients, but may keep them in the hospital longer to make up for the discount. Therefore, medical costs continued to rise, although not as sharply as before.



Insurance Continuing Education

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Continuing Insurance Education