Health United States 2020-2021

Managed care

A term originally used to refer to prepaid health plans (generally, health maintenance organizations [HMOs]) that furnish care through a network of providers under a fixed budget and manage costs. Increasingly, the term is also used to include preferred provider organizations (PPOs).

Medicare managed care includes a combination of risk- and cost-based plans. Risk-based plans receive a fixed prepayment per beneficiary per month to help pay for the cost of all covered services that a beneficiary may use. Each year, the Centers for Medicare & Medicaid Services (CMS) announces a benchmark amount for each county for coverage of Medicare Part A and Part B services. A managed care plan contracting with Medicare then submits a bid, which represents the revenue it needs to cover these services. If the bid is above the benchmark, the difference must be charged in a premium to the enrollees of the plan. If the bid is below the benchmark, then a portion of the difference must be used to provide additional benefits to enrollees, with the Medicare trust funds receiving the remaining share. The term Medicare Advantage is used to refer to managed care plans, including HMOs, PPOs, private fee-for-service plans, special needs plans, Medicare medical savings account plans, and certain other types of plans.

Cost-based plans are offered by an HMO or a competitive medical plan and are paid for their “reasonable costs” in providing Medicare services to enrollees, based on annual cost reports filed with CMS. For current definitions of the various Medicare managed care plans, see Chapter 1, section 30, Other MA plans, in the CMS “Medicare Managed Care Manual,” available from:

Medicare enrollees can choose to enroll in a managed care program (if available) or to receive services on a fee-for-service basis.

The two major Medicaid managed care categories are risk-based plans (such as managed care organizations or MCOs, prepaid inpatient health plans, and prepaid ambulatory health plans) and primary care case management (PCCM) arrangements. Risk-based plans are paid a fixed fee per enrollee, which is generally paid monthly. Risk-based plans assume some or all of the financial risk for providing the services covered under the contract. PCCM providers are usually physicians, physician group practices, or entities employing or having other arrangements with such physicians, but they can also include nurse practitioners, nurse midwives, or physician assistants. These providers contract directly with the state to locate, coordinate, and monitor covered primary care (and sometimes additional services). PCCM providers are paid a per-patient case management fee and usually do not assume financial risk for the provision of services. Some states allow Medicaid enrollees to voluntarily enroll in managed care plans; most states require that at least certain categories of Medicaid beneficiaries join such plans. Both risk-based plans and PCCM arrangements include specialized services to certain categories of Medicaid beneficiaries. For more information on state Medicaid managed care plans, see: (Also see Sources and Definitions, Health maintenance organization [HMO]; Medicare; Medicaid; Preferred provider organization [PPO].)