Private Health Plans: Managed Care


Managed care health plans (including HMOs, PPOs, and other arrangements) provide health insurance coverage and deliver care through a designated provider network. Most managed care models share three characteristics: limitations on the use of providers, negotiated provider reimbursement, and some form of utilization review.

Managed care insurance products, including health maintenance organizations (HMOs) and preferred-provider organizations (PPOs), generally have more limited physician and hospital networks, as well as more restrictions on service utilization. Some require beneficiaries to obtain prior approval from a primary care provider for most specialist care, while others offer “open access” to specialists without prior approval. A point-of-service plan allows HMO beneficiaries to seek care outside the HMO. Typically, it comes with higher deductibles, copayments, or both and, in some cases, higher premiums. PPOs generally pay physicians on a discounted fee-for-service basis, and consumers have incentives, usually in the form of reduced cost-sharing, to obtain care from participating providers.

Managed care plans are available in public programs like Medicare, including Medicare Advantage (MA) plans and Medicaid managed care plans. They are also available in many employer-sponsored plans and elsewhere in the private sector. As of 2017, of people with employer-sponsored health coverage, 48 percent of covered workers were enrolled in PPOs, 28 percent in high-deductible health plans, 14 percent in HMOs, 10 percent in point-of-service plans, and less than 1 percent in conventional plans.

In 2017, 33 percent of Medicare beneficiaries were enrolled in MA plans. A growing share of Medicaid beneficiaries were enrolled in managed care plans. This trend is expected to grow. Because states are expanding the population groups eligible for Medicaid services in managed care plans, including beneficiaries who are dually eligible for Medicare and Medicaid, the proportion of beneficiaries in managed care plans will continue to increase.

Regulation and oversight of managed care plans vary considerably across the states, with a patchwork of rules. Some states have adopted a broad set of regulations that address the majority of managed care activities for all models of managed care plans. Other states regulate only one type of managed care plan (e.g., HMOs but not PPOs) or have enacted laws that regulate only a particular aspect of a managed care system, such as utilization review, length of hospital stays, or physician-consumer communications.

Private accrediting bodies and government agencies now pay greater attention to measuring the performance of PPOs. Some states require private accreditation for licensing. Many states allow private accrediting organizations to deem that a health plan satisfies some or all state requirements in such areas as quality assurance, utilization management, access to care, and credentialing.

Uniform national standards for managed care plans would provide consumers, regardless of where they live or how they obtain coverage, with a consistent level of protection. The Affordable Care Act contains several consumer protections that address access to primary care physicians, coverage of emergency services, and external appeals. An excessive number of plan choices can confuse consumers and prevent them from making good enrollment decisions.

Public reports of performance on standardized measures, including consumer experience and the clinical effectiveness of care, would help to increase health plan accountability and enable more informed consumer decision-making. In general, Medicare has been a leader in identifying and codifying standards for the conduct of private health plans in the MA program.

One obstacle to consistent and uniform regulation is the federal law ERISA. Some courts have ruled that the law prevents employees in self-insured plans from suing their plans in state court for damages that result from denied or delayed care. ERISA does permit participants in self-insured plans to sue in federal court. Still, plaintiffs may recover only the actual cost of the benefit denied or delayed and not punitive or compensatory damages. The U.S. Supreme Court ruled that ERISA preempts state laws that conflict with the federal law’s civil enforcement remedies (see also Medicare Advantage).

Depending on how these arrangements are implemented, they can have an adverse or positive impact on consumer care. For example, in fee-for-service medicine, when providers are paid a fee for each service offered, they may provide unnecessary care. Protections are needed to ensure that financial incentives to increase providers’ cost awareness do not become disincentives to provide appropriate care. At the same time, incentives should not constrain providers from discussing with consumers the full range of treatment options or any other issue that might affect consumer health.

Another emerging physician-patient relationship is direct primary care. This usually refers to a direct financial relationship between patients and providers that does not involve any outside health insurance. Patients pay fixed monthly fees, fees for visits, or a combination of both in exchange for access to certain basic, non-specialty outpatient services. The arrangements do not cover many other services included in typical health insurance policies. However, consumers are not always aware of these limitations. Healthier consumers may be attracted to direct primary care because it can be less expensive than traditional insurance and promises easier access to primary care. In many states, direct primary care arrangements are not subject to oversight and are not required to meet state insurance standards and requirements protecting consumers.

Strong oversight of noninsurance-based health arrangements, such as direct primary care or other membership-based arrangements, protects consumers. Consumers need clear, plain-language disclosure in marketing and contract materials about the limitations on services and the potential liability for non-covered costs to the consumer. Direct primary care participation can interact with consumers’ insurance coverage and decisions about insurance enrollment. Such arrangements have the potential to significantly impact state health insurance markets.



Choice of plans

AARP does not favor any particular health care coverage option. Public (e.g., Medicaid) and private sponsors should offer more than one health insurance option to those eligible for coverage. Plan selection should be voluntary and at the consumer’s discretion. Policymakers should require insurers offering multiple plans to limit their offerings to those with meaningful coverage differences.

Policymakers should consider requirements to ensure that insurers offering multiple plans limit their offerings to those with meaningful coverage differences (see also this chapter’s policy on Choice of Medicare Coverage Options in the section on Medicare Advantage).

This could include placing limitations on multiple plan offerings that do not have meaningful differences, requiring greater standardization of benefits, and improving plan comparison tools.


Ongoing research should determine best practices for health plans to achieve savings and deliver high-quality care. It should analyze the impact of service delivery by health plan, patient characteristics, and provider organization. In addition, research should examine the effects of different delivery systems on population subgroups such as older people, historically disadvantaged groups, those with chronic conditions, and people with disabilities or low incomes, with particular attention to cost, quality, and access to care.


National standards

The state and federal governments should apply uniform national standards to all forms of private health plans, including provider-sponsored organizations and preferred-provider organizations. To the extent possible, these standards should be the same for all plans and across all payers. This includes Medicare, Medicaid, self-insured plans regulated by Employee Retirement Income Security Act (ERISA), and state-regulated plans offered to employer groups and individuals.

Medicare’s comprehensive system of consumer protections for network-based health plans should be maintained. Comprehensive standards for all other public and private coverage plans, including ERISA plans and plans offered through state Medicaid agencies, should be developed. There should not be federal preemption of state managed care laws until a federal law is established that affords consumers greater protections than they have under state law.

State standards

In the absence of national standards, states should enact a comprehensive set of rigorous standards for managed care plans comparable to those called for in Medicare (see also Medicare). To the extent possible, these standards should apply to all types of public and private network-based plans, including PPOs, regardless of their profit status or organizational structure.

States must ensure that all network-based health plans offer adequate and appropriate access to providers who can meet the needs of the enrolled population. If a health plan’s network cannot meet an enrollee’s covered needs, the plan must make arrangements with nonparticipating providers or institutions. The cost for these services should be no greater than the enrollee would have paid for in-network services.

Consumers with mental disorders should always receive appropriate referrals to mental health specialists.

Health plans should be required to provide out-of-network referrals at no additional cost to the enrollee if the health plan does not have a network clinician with appropriate training and experience or does not have an affiliation with a recognized specialty-care center to meet the enrollee’s covered medical needs.

Surprise billing

Policymakers should enact safeguards to protect consumers against surprise bills. Surprise bills are charges from non-network providers who provide services without the consumer’s knowledge or consent in an otherwise in-network setting.

Such actions may include:

  • creating new dispute resolution processes that hold consumers harmless;
  • limiting consumer responsibility for out-of-network cost-sharing amounts;
  • improving the accuracy of provider directories;
  • requiring insurers and providers to provide consumers with meaningful disclosures of out-of-network providers, and other protections.


All health plans must be financially sound. Financial standards should address solvency requirements, including requirements for capital reserves that consider the plan’s level of risk and its service-delivery capabilities. Standards should be set at levels adequate to protect enrollees in the event of a plan’s insolvency.


Women should have direct access to obstetricians/gynecologists, nurse-midwives, and nurse practitioners and be allowed to designate these clinicians as primary care providers.

Health plans should be required to provide referrals to specialists affiliated with the plan or to recognized specialty-care centers affiliated with the plan pursuant to treatment plans. Referrals should include provisions for standing referrals, as determined by the referring practitioner.


Continuity of care

In order to facilitate continuity of care, health plans must notify affected enrollees at least 90 days before a provider is terminated when the termination is not for cause. When termination is for cause, affected enrollees should be notified as soon as possible of their provider’s departure. And they should be given information about how to obtain a new provider.

Certain enrollees—such as those undergoing an active course of treatment for a life-threatening disease or condition, or for a degenerative and disabling disease or condition, or who have entered the second trimester of pregnancy at the effective date of enrollment—should be able to receive covered medically necessary care from their physician specialists for up to 90 days or through postpartum. This should apply to new enrollees who belong to a group that did not provide them with the option of continuing with their previous physician specialist. It should also apply to existing enrollees if their previous physician specialist is terminated by the health plan for reasons other than cause.

Managed care liability

All managed care plans should be held accountable for their actions. In cases where a health plan has been involved in a decision to delay or deny needed services, and the decision has had negative medical consequences, the plan should be liable for any injuries or harm to the enrollee.

State laws on the corporate practice of medicine that prevent holding managed care organizations accountable for any harm caused by an inappropriate treatment decision should be revised to afford the injured enrollee access to state court.

The right to seek meaningful judicial redress for decisions that lead to injury or death should be available to enrollees in private health plans regardless of the source of their health care coverage.


Private health plans must prevent improper use or release of personally identifiable medical information and must adopt protections appropriate to the use of electronic information and nationally based payer and provider systems (see also Privacy, Confidentiality, and Security of Health Information).


Data collection and reporting

All health plans must comply with data and reporting requirements that address the frequency, content, and format of reports. States should require commercially licensed and publicly sponsored health plans (e.g., Medicaid) to report their performance. It should be assessed by standardized, evidence-based measures, including measures of clinical effectiveness and enrollee experience, in a format that consumers will readily understand.

Data collected by health plans must be independently audited by an authorized entity. States also should require data on:

  • medical costs or expenditures on a per capita basis by type of expenditure (physician, inpatient, outpatient, home health, skilled-nursing facility, etc.);
  • plan administration costs;
  • complaints and grievances and their resolution;
  • clinician satisfaction;
  • clinician responsiveness to consumer engagement;
  • health care quality (as assessed by standardized measures), including the performance of participating clinicians, hospitals, skilled-nursing facilities, home health agencies, and pharmacies; 
  • credentialing;
  • utilization management or appeals regarding the use of out-of-plan services;
  • accessibility, including wait times for appointments and numbers of practitioners accepting new patients;
  • rates of clinician turnover;
  • enrollment and disenrollment; and
  • race and ethnicity and language preference.

Ombudsman programs

Consumers should have access to an independent, nonprofit ombudsman program. They should receive information from the state and health plans on how to access the services available from these types of programs. These programs should receive federal or state funding, or both, as needed.

Ombudsman programs should help consumers understand health plan marketing materials and coverage provisions and help them assess information on quality. The programs should educate enrollees about their rights within health plans, identify and investigate enrollee complaints, assist enrollees in filing formal grievances and appeals, operate and staff a telephone hotline, and report to and advocate before appropriate regulatory bodies on issues of concern to consumers.

Health plans should be required to cooperate with such programs.


States should allocate sufficient resources and personnel to the regulation of managed care organizations to ensure strong and effective oversight. In states where more than one agency has authority to regulate managed care organizations, the agencies should coordinate their activities to facilitate effective oversight.

States must ensure that plans operating in sparsely populated areas meet all standards, including but not limited to standards on the adequacy of the provider network, while taking into account the prevailing patterns of service delivery in those areas.

States should ensure that the personnel assigned to regulate managed care plans are adequately trained to enforce applicable laws and regulations effectively. States should engage in ongoing oversight by reviewing data submitted by managed care plans and taking necessary actions such as setting performance targets or issuing compliance notices. In addition, periodic site visits should be conducted.

Consumers should be represented on health plan decision-making and advisory bodies.

State task forces that study managed care should include enrollees, prospective enrollees, and other consumer representatives (see also Medicare Advantage for policy on private health plans in Medicare).

States should provide strong oversight of non-insurance based health arrangements, such as direct primary care or other membership-based arrangements, to protect consumers. These entities should be required to provide clear, plain language disclosure to consumers in marketing and contract materials of about the limitations on services they can provide and the potential liability for non-covered costs to the consumer. Because direct primary care participation can interact with consumers’ insurance coverage and decisions about insurance enrollment, and such arrangements have the potential to have significant impact on state health insurance markets, states should not exempt direct primary care arrangements from state insurance oversight.