The following chart is just one example of how money flows from the employer who purchases a health plan, to the providers:
The employer pays the Health plan on a monthly basis. This is called the premium. The health plan deducts its administrative costs and reserves, and pays the rest to either an integrated delivery system (IDS) or managed care organization (MCO).
An IDS is a system of health care providers organized to span a broad range of health care services. An example of an IDS is a physician/ hospital organization (PHO) which is basically a partnership arrangement between a hospital and its physician staff. An MCO is a generic term used to refer to a managed care plan. The MCO may be a Health Maintenance Organization (HMO) or a Preferred Provider Organization (PPO).
The HMO provides services under one or more of the models identified. The staff model HMO employs doctors and pays them an annual salary regardless of how many patients are seen. The physicians may also receive bonuses if they keep costs down.
The group model HMO contracts with a group practice and pays that group a fixed capitated fee (Per Member Per Month). The medical group is then responsible for all of the health care services of the enrolled HMO population. Per contract, the group practice may only be able to see HMO patients.
The IPA model involves a contract between the HMO and an Independent Practice Association which is a legal entity made up of a group of sole practice physicians.
IPA allows the sole practitioner to compete with medical groups for HMO business, but gives that physician the luxury of seeing private patients as well.
The network model is simply a combination of the other models. In other words, an HMO may hire its own physicians, contract with one or more group practices and contract with an IPA or more. Many HMOS practice under this model.
The point of service (POS) model allows patients greater flexibility in choosing physicians. If the patient stays with HMO physicians they pay less out of pocket than for non-HMO or out of plan physicians. The POS model is similar to Preferred Provider Organizations and was in fact developed to compete with PPOs.
Common features of managed care plans are risk pools and withholds. The health plan pays the MCO or HMO a fixed Per Member Per Month fee which is to cover the cost of primary care for the enrolled population. The MCO or HMO also creates a pool of money that will be used to pay specialists, hospitals, pharmacies, Radiology services and other ancillaries. Payments made to primary care physicians or medical groups on a PMPM basis are reduced by 5-20%. The money is deposited in a separate account and is used to cover cost overruns. So, when the money in the risk pool runs out, the money withheld will be used to cover costs.
If any of the withhold money is left at year end, the money is paid to the physicians or the medical group. If any money is left in the risk pool, the physicians and medical groups share in a percentage of that money. This is one the major complaints about the managed care system. There is an incentive for the physician to limit referrals, hospitalization and other services with the hope of receiving larger year end bonuses.
A health plan may offer a Preferred Provider Organization (PPO) plan and pay the physicians a negotiated, discounted, fee-for-service rate. The physicians in the plan contract to become members and agree to accept plan payments as full, in exchange for a promise of higher volume. The PPO plan allows the patient to go to a specialist directly, without the need for a referral from a primary care physician. In exchange for this flexibility, PPO patients are responsible for paying co-payments, deductibles and co-insurance.
Co-payment: Out of pocket expenses paid by the patient at the time of the office visit. It ranges between $5-20 per visit, depending on the plan.
Deductible: Out of pocket annual amount that has to be satisfied before health coverage kicks in. It ranges from $0-1,000 per year. Once the deductible is met by the patient the health plan coverage kicks in up to the co-insurance limit.
Co-insurance: A percentage of the health care costs that the patient must pay out of pocket, above and beyond the co-payment and deductible. It ranges from 10-30 percent of the total costs of health care services.