Fee-for-Services Healthcare Insurance and Managed Care have important differences that are important to consider when selecting a healthcare plan for you and your family. Beware the hidden fees.
These two terms might be two of the most important you never heard of. They make a huge difference in selecting a health plan for your family, and especially in the world of Medicare. They describe the two basic methods for paying healthcare providers. One has been around since insurance began, and the other is a relatively new concept. Here’s what they are:
Fee For Service Healthcare Plans.
This is the way medical providers have always been paid for their services. It simply means that a particular payment is given, at an established rate, to the medical provider for each service he or she delivers. Fee-for-service is a system of health insurance payment in which a doctor or other health care provider is paid a fee for each particular service rendered, essentially rewarding medical providers for volume and quantity of services provided, regardless of the outcome. This is in contrast to alternative models, including bundled payments, patient-centered medical homes, and accountable care organizations.
The differences involve who’s paying the bill: The patient himself/herself; the patient’s employer; the local, state, or federal government; or an insurance company; or some combination of them. Colleges often bundle to obtain affordable care for college students. Different payer groups (employers, for example) will negotiate and set the prices allowable in their plans. When an insurance company is the payer, the insurance company sets its payment amount with the medical provider.
If the medical provider is big (like a huge hospital-clinic complex), the provider has a lot of leverage. If the provider is small (like a one-person doctor office), the provider usually has a “take it or leave it” proposition. When the government is the payer, they set the price–usually below market value and the actual cost of the services.
Managed Care, in contrast, is another world.
Managed care involves a middle man. Instead of having set prices for each service performed by each medical provider, fees are based on having a payment middleman, usually the insurance company.
The middleman or “managed care contractor” is paid a flat amount per month per patient. The patient, employer, government, or some combination of these pays the monthly fee. Out of that pooled money, all of the enrollees’ medical bills get paid.
Sometimes this is referred to as a “risk contract” because, at the end of the year, the managed care insurance company risks bills that are higher than the amount paid into the pool. Each insurance company negotiates and sets what it will pay each provider for each service. These prices aren’t disclosed. The Medicare Fee For Service prices, on the other hand, are public.
In general, Medicare pays lower prices to providers than do insurance companies, because Medicare is so big that is has great leverage with providers.
In the late 1970s and into the 1980s, the insurance industry began what are referred to as Medicare Managed Care or Health Maintenance Organizations (HMOs). These often supplement seniors whose Medicare insurance doesn’t cover the full costs of their care.
Which plan you should choose depends on the fine print.
Feldman and Scharfstein maintain that some managed health care plans are better than others and that managed care plans on the whole sometimes offer lower quality care than fee-for-service plans.
Because these plans all differ so widely, BUYER BEWARE. You’ll need to read the fine print about medical providers, hidden fees, and limitations on services provided. A good insurance agent should be honest and help you make the best decision for you and your family.
In the meantime, get a good night’s rest and take care of your health because prevention is the best way to reduce the need for expensive medical services in the first place.