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: https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Downloads/mc86c01.pdf .

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