SIC 6324 Hospital and Medical Service Plans
SIC 6324
The hospital and medical service industry, also commonly referred to as the managed care industry, is comprised of establishments providing hospital, medical, and other health services to enrollees or members of a prearranged plan or agreement. Many of these establishments also provide traditional health insurance vehicles. Managed care plans typically arrange to provide medical services for members in exchange for subscription fees paid to the plan sponsor. Members receive services from physicians or hospitals that also have a contract with the sponsor. Thus, managed care plans integrate the financing and delivery of appropriate health care services to covered individuals.
524114
Direct Health and Medical Insurance Carriers
525190
Other Insurance and Employee Benefit Funds
524130
Reinsurance Carriers
By the mid-2000s, traditional indemnity insurance had been effectively replaced by the management care model, which first became popular in the 1980s. Managed care enrollment exploded in the 1990s, and by 2004, over 90 percent of all commercial medical insurance plans were managed care, accounting for over 181 million Americans. Although originally developed as a means to cut medical costs, managed care plan premiums skyrocketed during the early and mid-2000s, leading to widespread concern that medical care expenditures were spiraling out of control.
Between 2001 and 2005, premiums rates rose by 60 percent, increasing by double digits every year. In 2004, premium rates increased by 11.2 percent and average per-employee costs for health care rose by 7.5 percent, following an increase of 7.7 percent in 2003, and the sixth consecutive year of increases of over 6 percent, despite employers efforts to keep costs down by switching to high deductible and co-pay plans. While consumers and employers complained of high premium prices, managed health care organizations worked to strike a delicate balance between their own rising costs, namely in drug and hospitalization coverage, and a productive bottom line.
Managed health care plans, or pre-paid plans, exist in various forms, yet all plans serve the same basic function—to spread the risk of extensive losses suffered by one individual across an entire membership group that is exposed to similar risk. By pooling the health care dollars of many subscribers, individual enrollees are assured of receiving care that they otherwise might not be able to afford. Managed care differs from traditional insurance in that members of managed care programs typically have less freedom to choose their health care providers, thus limiting the plan member's control over the quality and delivery of care in a managed system. Members of managed care plans usually must select a "primary care physician" from a list of doctors provided by the plan sponsor.
As managed care plans evolved into the twenty-first century, competing plans offered innovative health care delivery in response to the preferences of consumers. Still, all plans had certain elements in common. Common factors included arrangements with selected providers to furnish a set of health care services to members, definition of explicit standards for the selection of health care providers, maintenance of ongoing quality assurance standards, and the utilization of review programs. Additionally, significant financial incentives were set in place to discourage members from using providers and procedures not covered by the plan. In 2004, 177.8 million Americans were enrolled in PPOs and HMOs alone. Many of these people participated in plans offered through their employer. Statistically, 90 percent of U.S. workers covered by company insurance plans participated in some form of managed care
Managed care plan administrators act as intermediaries by contracting with health care providers and enrollees to deliver medical services. The enrollees pay a set fee that entitles them to services. The plan administrator then supervises the health care providers. Subscribers benefit from reduced health care costs, and the health care providers profit from a guaranteed client base.
Enrollment in managed care plans appeals to members because it can provide savings over traditional indemnity insurance plans, which typically serve the singular function of claims reimbursement. Contrary to traditional insurance plans, managed care sponsors are highly motivated to suppress health care costs and deliver quality services. Indemnity insurance, in contrast, offers little incentive to control the cost of health services. The savings of managed care results from an active role taken by the plan sponsor in determining the most cost-efficient means of delivering care to its members. Sponsors of managed care, for example, work with health care providers to increase outpatient care, reduce administrative costs, eliminate complicated claims forms procedures, and minimize unnecessary tests. Plan sponsors accomplish these tasks by reviewing each patient's needs before treatment and requiring a second opinion before authorizing doctors to administer care. Likewise, hospitalization of a plan member requires prior authorization, and services performed by specialists cannot proceed in the absence of approval. Some managed care plans offer bonuses to doctors for avoiding expensive tests or costly services performed by specialists, and some sponsors employ award bonuses to doctors in return for shortening the time a patient stays in the hospital. Practices such as these, according to critics of managed health care, can easily lead to undertreatment.
Managed care places emphasis on preventive medical techniques that help patients avoid serious future health problems, which, in turn, reduces cost. For instance, managed care plans typically authorize regular physicals and checkups at little or no charge to their members, to prevent or detect long-term complications at an early stage. Many plans offer cancer screenings, stress reduction classes, programs to help members stop smoking, and other services that save the sponsor money in the long run by keeping the plan member healthy. Some plans offer financial compensation to members who lose weight or achieve fitness goals. For example, one plan offered $175 to overweight members who lost 10 pounds and gave $100 to members who participated in fitness programs.
Managed care plans exist in many forms. Most popular are health maintenance organizations (HMOs) and preferred provider organizations (PPOs). Other plans that combine elements of HMOs and PPOs include exclusive provider organizations (EPOs), point of service plans (POS), third-party administrators, and competitive medical organizations. In addition to these established plans, many employers and organizations offer hybrid plans that combine various forms of insurance and managed care into programs that offer multiple options for members of their group. In 2004, 89.1 million American were covered by PPOs; 79.3 million, HMOs; and 13 million, EPOs.
The basic HMO, characterized by the description of managed care plans provided above, was the most popular plan during the 1990s. HMOs, with 70 million enrollees in 1999, boasted a 30 percent market share among managed care providers, up from just fewer than 60 million people at the end of 1996. By the mid-2000s, HMOs had declined in popularity, and held only a 25 percent market share.
Four organizational models exist for the HMO; these define the respective relationship among plan sponsors, physicians, and subscribers. Under the first model, called independent practice associations (IPA), HMO sponsors contract with independent physicians who agree to deliver services to members for a fee. Under this plan, the sponsor pays the provider on a per capita, or fee-for-service, basis each time it treats a plan member. Under the second model, the group plan, an HMO contracts with a group of physicians to deliver client services. The sponsor then compensates the medical group on a negotiated per capita rate. The physicians determine how they will compensate each member of their group. Another model, called the network model, is similar to the group model, but the HMO contracts with various groups of physicians based on the specialty that a particular group of doctors...
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