Impact of Managed Care on Health-Care System

Managed care is the name given to a system of health-care service delivery that rations access to medical services in ways designed to control costs and spread the financial risk to the entity funding the program, "generally accomplished by reducing access to the most expensive types of care and substituting less expensive interventions" (Penney, 1997, p. 48). Like standard health-insurance programs, managed care facilitates the provision of medical care by drawing from a large financial pool paid into by participants. The insurance company or managed care company (MCO) subsidizes the cost of medical care to covered persons, making money in part on the difference between the money pool and claims for subsidized service made by sick people. The financial risk is spread because the MCO or insurance company is gambling that there are more healthy than sick people.

A key difference between MCOs and traditional insurance plans, however, is that traditional insurance plans are structured around a so-called fee-for-service concept. What that comes down to is that insured patients may seek care from physicians and institutions of their choice, filing claims based on covered

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cific universe of services. Services not covered under the contract must be approved by the third-party MCO; otherwise, their cost is absorbed either by patients or the service provider. Limiting patient discretion in the selection of treatment modalities, many of which involve high-priced specialist practitioners and/or high-priced technology and testing that have become possible on account of state-of-the-art medical research, is meant to control costs. To be sure, since the 1970s the cost of health care has outpaced the rate of inflation significantly (Reamer & Howall, 1997). Such costs fostered calls for health-care reform. But the response of institutions historically charged with funding that care in the private sector has specifically and programmatically been directed toward attempting to manipulate patient access to it rather than toward attempting to alter or affect the cost of the care per se. In other words, health-care reform has been conflated with restricting access to rather than reforming the care, with the conflation assuming the shape of the MCO. In this regard, a survey of city and county managers, many of whose employees receive health care on an MCO basis, includes a response that distills an understanding of
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