Medicare Managed Care Plans: An Alternative to Medigap Insurance

A Medicare managed care plan can supplement your Medicare coverage.

A Medicare managed care plan is one way to get coverage for the health care bills that Medicare doesn't pay. Medicare managed care plans are HMOs or PPOs that provide basic Medicare coverage plus other coverage to fill the gaps in Medicare coverage.

Medicare Managed Care Plans vs. Medigap Insurance

Medicare managed care plans fill the gaps in basic Medicare, as do medigap policies. However, Medicare managed care plans and medigap policies operate in different ways. Medigap policies work alongside Medicare to pay the bills: Medical bills are sent both to Medicare and to a medigap insurer, and each pays a portion of the approved charges.

Medicare managed care plans, on the other hand, provide all the coverage themselves, including all basic Medicare coverage, plus other coverage to fill the gaps in Medicare coverage. The extent of coverage beyond Medicare, the size of premiums and copayments, and decisions about paying for treatment are all controlled by the managed care plan itself, not by Medicare.

The Economics of Managed Care

The basic premise of managed care is that the member-patient agrees to receive care only from specific doctors, hospitals, and others called a network in exchange for reduced overall healthcare costs.

Several varieties of Medicare managed care plans are available. Some have narrow restrictions on consulting with specialists or seeing providers from outside the network. Others give members more freedom to choose when they see doctors and which doctors they may consult for treatment. Plans that offer more choices in coverage especially PPOs and HMOs with point-of-service options charge higher premiums.

If you are considering a Medicare managed care plan, you must decide whether any of the plans available in your area offer adequate care at an affordable cost including the costs of copayments for doctor visits and prescription drugs. (To see a comparison of managed care plans in your area, go to www.medicare.gov/Choices/Overview.asp.)

Here are some of the basic types of managed care plans.

Health Maintenance Organization (HMO)

The HMO is the least expensive and most restrictive Medicare managed care plan. There are four main restrictions.

Care within the network only. Each HMO maintains a list called a network of doctors and other healthcare providers. The HMO member must receive care only from a provider in the network, except in emergencies. If the plan member uses a provider from outside the network, the plan pays nothing toward the bill, and Medicare will not pay any of the bill either because the  plan member has withdrawn from traditional Medicare by joining managed care. The plan member must pay the entire bill out of pocket.

Discuss with your doctors any particular HMO you are considering. Ask whether your doctor has heard of problems with the plan, particularly with approval of treatments, referrals to specialists, or early release from inpatient hospital care.

All care through primary care physician. An HMO member must select a primary care physician from the plan's network and see this doctor first for most medical needs. An HMO member may not see other doctors or providers even from within the plan's network or obtain other medical services without a referral by the primary care physician. Even if you regularly see a variety of specialists, your primary care physician must usually refer you to those doctors. You may not simply make an appointment to see them on your own.

Prior HMO approval of some services. HMOs may require that your primary care physician or other network physician obtain prior approval from the plan for certain medical services the doctor may want to prescribe. If plan administrators do not believe a service is medically necessary, or believe service from a non-specialist or other less expensive treatment would do just as well, they may deny coverage for that prescribed service.

Limited appeal rights. Within every HMO plan, a member has a limited right to appeal the plan's decisions. However, for the vast majority of HMOs, reviewers who work for the HMO hear the appeal. There is no review by outside experts, and no appeal to Medicare; only a few HMOs have outside review panels that consider appeals in serious cases.

HMO With Point-of-Service (POS) Option

A few HMOs have a significant wrinkle that makes them more attractive and more expensive than standard HMO plans. These plans offer what is called a point-of-service option. This option allows a member to see physicians and other providers who are not in the HMO's network, and to receive services from specialists without first going through a primary care physician (called "self-referring").

However, if a member does go outside the network or sees a specialist directly, the plan pays a smaller part of the bill than if the member had followed regular HMO procedures. The member pays a higher premium for this plan than for a standard HMO plan, and a higher copayment each time the option is used.

Preferred Provider Organization (PPO)

Although it has a different name, using a PPO works much the same as using an HMO's point-of-service option. If a member receives a service from a PPO's network of providers, the cost to the member is lower than if the member sees a provider outside the network. (Unlike an HMO with a point-of-service option, however, a PPO does not always require the patient to go through a primary care physician for referrals to specialists. PPO patients are usually allowed to self-refer to some specialists.)

PPOs tend to be more expensive than standard HMOs, charging both a monthly premium and a higher copayment for non-network services. However, many people find that the extra flexibility in choosing doctors is an important comfort to them, and therefore worth the extra money.

Provider Sponsored Organization (PSO)

The PSO is a group of medical providers doctors, clinics, and a hospital that skips the insurance company middleman and contracts directly with patients. As with an HMO, the member pays a premium, as well as a copayment each time a service is used.

Some PSOs in urban areas are large conglomerations of doctors and hospitals that offer considerable choice in providers, but many PSOs are small networks of providers that contract through a particular employer or other large organization or that serve a rural area that has no HMO.

For help sorting through the different plans available, see Nolo's article Medicare Managed Care: Choosing a Plan. For more detailed information on Medicare managed plans, and other health insurance options, get Social Security, Medicare, and Government Pensions, by Joseph L. Matthews and Dorothy Berman Matthews (Nolo).