"Managing Care" Kept It Expensive
Americans on private health plans are likely familiar with the "managed care" model of health insurance. Most notably, it requires that you seek treatment within a set network of doctors and medical facilities, sometimes receiving extra case management and health literacy resources to help manage your wellness.
This paradigm of healthcare, which has been around since the 80's, promised to control the rising cost of healthcare by working with patients to manage long-term factors in wellness.
If you take a look at healthcare spending adjusted for inflation at the national level -- or even just your own medical spending -- it doesn't seem to have really done that job. Let's see why that is.
What Defines Managed Care
Managed care is a set of techniques that Americans have come to accept as similar characteristics of private health plans. Typically, a managed care organization (MCO) will package a handful of techniques into a health plan.
These techniques include establishing provider networks wherein the MCO negotiates with a network of doctors for a set of negotiated prices to charge members of the health plan for certain services. Many of these contracts also have provisions for how doctors in the network refer patients to specialists in the network.
By making members receive care in-network by covering less out-of-network care, an MCO is hoping that patients take advantage of savings that might've been achieved in negotiations.
Some MCO's, hoping to control long-term costs associated with chronic and preventable illness may provide incentives to members to pursue diagnostic services and wellness programs like gym memberships.
For many MCO's, the highest source of medical service costs come from those with complex medical needs or catastrophic accidents. This is where the practice of utilization management comes in, wherein some MCO's will assign case managers to make sure that high-risk members are pursuing proper management of complex issues, with the primary goal being to ensure a member doesn't receive "unnecessary" care.
This, of course, can cause issues where an MCO denies coverage of certain medical services because they're deemed "unnecessary" -- a painful side effect of the layers of administrative bureaucracy that separate the patient's needs and discussions with their doctor from the payer's (insurer's) incentives.
Today, MCO's manifest in a variety of types of plans like preferred provider organizations (PPOs) and health maintenance organizations (HMOs).
A Brief History of Managed Care
In the early 70's, there was a huge push to control increasing healthcare spending in the US. After failures to try pass a national health insurance scheme, the Nixon administration passed along the Health Maintenance Organization Act of 1973. Prior to the Act, a handful of non-profit HMO's showed some promise in expanding healthcare service options at relatively affordable rates.
The Act opened the floodgates to private for-profit organizations to pursue a similar structure of health plan, and this law is thus associated with the birth of modern managed care in the US.
By the 90's, managed care had come to dominate healthcare plans, and a 2007 report by the trade association American's Health Insurance Plans claimed that 90% of insured Americans were in plans with some managed care variant, . In fact, many state-level Medicaid plans also operate on managed care models to cover residents with low income levels.
However, public perceptions of managed care have been notoriously poor, with many consumers attributing managed care to reducing face-to-face time with doctors, making the process of seeing a specialist a pain, and failing to address cost growth.
40 Years and Failing?
Managed care plans are credited with reducing the growth of healthcare spending in the late 1980's by reducing unnecessary hospitalizations and inducing immediate discounts in the cost of medical services set by care providers.
However, it seems that these controlled costs were largely temporary, as costs continue to climb at faster rates through the 90's and 2000's.
One potential explanation is that managed care significantly reduced the amount that Americans were paying out-of-pocket (OOP). Despite rising health insurance premiums, the lower OOP cost for many medical services may provide incentives to use more medical services, because the total cost of medical services are somewhat obscured.
This is somewhat like how apps like Klarna's "Buy Now, Pay Later" programs enable consumers to overspend. Deferring the total cost while receiving immediate utility from a medical cost likely contributed to rising healthcare spending overall.
In the early 2000's, high-deductible health plans (HDHPs) entered the market as a potential solution. The idea was that these HDHP's with higher OOP costs would encourage consumers to choose medical services more wisely, but even these plans' effects on controlling spending are limited.
There are a number of other insights on why managed care has not turned out to control costs as much as promised. Professor Alain Enthoven gave an excellent lecture at Mayo Clinic in 1999 covering topics from the challenges of balancing consumer interests for total freedom of choice with doctors to the actions of employers to outsource the job of giving employees ample health benefits choices.
However, one assessment of managed care did a great job of summing up what truly went wrong.
The article claims that MCO's have not been as bad for consumers as portrayed by the media, but that the most common forms of MCO's are not as good as they could be.
Namely, "virtual" networks that do not reflect the realities of care providers in a specific geography that work together organized with for-profit MCO's that manage costs more than care have performed worse than non-profit counterparts that are much less common but have better cost and quality outcomes.
As it turns out, if you can put efficient and effective care delivery as a first priority, cost reductions can follow quite smoothly.