This paper provides an overview of managed care in the American healthcare system, tracing its origins from the 1920s through the rise of HMOs and PPOs in the late twentieth century. It examines the structural shift managed care introduced — replacing the traditional two-party doctor-patient relationship with a three-party arrangement that includes the managed care organization. The paper weighs the benefits of managed care, including affordability and wider access, against its drawbacks, such as physician incentive structures that may compromise patient care, erosion of the doctor-patient relationship, and declining consumer satisfaction. The discussion draws on health communication, policy, and ethics scholarship to assess managed care's ongoing challenges.
Managed care plays a central and often controversial role in modern American healthcare. This paper provides a brief history of managed care and examines both its advantages and disadvantages. As defined by Lammers and Geist (1997), "managed care is an arrangement where an insuring organization accepts the risk for providing a defined set of health services, using a defined set of providers, for a defined population, in return for a fixed or regular per capita payment" (p. 46). In brief, for managed care to survive and prosper, member physicians must provide the minimum healthcare necessary to keep patients healthy while still turning a profit.
Managed care is not a new phenomenon in American healthcare. In fact, it has existed in the United States since the 1920s. Historians cite the 1930s as the beginning of managed care as we know it today. The launch of the Kaiser Health Plan during World War II resulted in the first clinic-based system of managed care (Editors, 2002). Edgar Kaiser, the founder of the Kaiser Health Plan — still one of the largest and most successful managed care plans — created what became a distinctly American phenomenon. Managed care is strictly an American invention and remains most popular in the United States.
After World War II, work was plentiful, life was good, and employers offered employees generous health benefits, often covering 100% of premiums. By the 1960s, the introduction of government programs such as Medicare and Medicaid caused healthcare costs to skyrocket. By the 1970s, costs rose even further, approaching 14% of Gross National Product (GNP). The decade from 1985 to 1995 saw the proliferation of HMOs and PPOs in an effort to curb escalating costs. Today, Managed Care Organizations (MCOs) cover three out of four American workers, and annual inflation in healthcare costs has been reduced significantly (Editors, 2002).
Between 1940 and the 1970s, more employees were covered by health insurance than ever before in the nation's history, contributing to better healthcare overall but also to steadily rising costs. When employers did not provide group coverage, many middle-class Americans could not afford individual insurance policies for their families. Some lacked access to group coverage because they were self-employed or small entrepreneurs with limited incomes. Others had serious preexisting conditions and were denied employer-sponsored coverage, or simply could not afford the expensive risk-adjusted policies available in the marketplace (Birenbaum, 1997, p. ix).
By the 1980s, managed care and HMOs were beginning to expand rapidly. The Tax Equity and Fiscal Responsibility Act of 1982 expanded the market by making it easier for Medicare and Medicaid beneficiaries to enroll in HMOs (Birenbaum, 1997, p. 17). Managed care was often the most popular choice for employer-provided insurance because of its affordability and convenience. In the 1990s, managed care came under increased scrutiny, yet it continued to grow in popularity.
Managed care replaces the traditional two-party doctor-patient relationship with a three-party arrangement that adds the MCO to the mix. Instead of a single physician, a plan participant may have several specialists, all of whom must be referred by the participant's primary care physician. As Lammers and Geist (1997) observe, "under these drastically new circumstances, providers — including individual physicians and nurses, as well as organizations like hospitals and clinics — have profoundly altered their behaviors" (p. 46).
Doctors are no longer responsible for one patient at a time. Their practices have become filled with thousands of patients who must all be seen as quickly and efficiently as possible. Patients, meanwhile, have become consumers: they can pick and choose health plans almost as easily as selecting items at a supermarket.
Several important issues face managed healthcare, both positive and negative. Initially, managed care served a major purpose in the American healthcare system, and at its inception many experts believed it would revolutionize the field. Because of relatively low premiums and low-cost co-payments, healthcare would become more affordable for everyone. Attending physicians could quickly and easily refer patients who needed specialists. Physicians could see more patients, and patients would save money on their care.
"Affordability, competition, and broader access gains"
"Physician incentives, coverage denials, eroded trust"
"Declining satisfaction and calls for reform"
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