Private Health Plans: Managed Care


Managed care combines health insurance coverage with responsibility for care delivery through a designated network. Most models of managed care share three characteristics: limitations on the use of providers, negotiated provider reimbursement, and some form of utilization review.

The names of managed care insurance products vary; common terms include health maintenance organizations (HMOs) and preferred-provider organizations (PPOs). HMOs 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 care, while others offer “open access” to specialists without prior approval. A point-of-service (POS) plan allows HMO beneficiaries to seek care outside the HMO, typically with higher deductibles and/or copayments 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 both the public and private sectors. For people with employer-sponsored health coverage, as of 2015, 52 percent of covered workers were enrolled in PPOs, 24 percent in high-deductible health plans, 14 percent in HMOs, 10 percent in POS plans, and 1 percent in conventional plans.

In 2016, 31 percent of Medicare beneficiaries were enrolled in private health plans and a growing share of Medicaid beneficiaries were enrolled in risk-based managed care plans. 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 varies 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 ACA contains several consumer protections that address access to primary care physicians, coverage of emergency services, and external appeals. 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 decisionmaking. In general, Medicare has been a leader in identifying and codifying standards for the conduct of private health plans in the Medicare Advantage (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, but plaintiffs may recover only the actual cost of the benefit denied or delayed and not punitive or compensatory damages. The US Supreme Court ruled that ERISA preempts state laws that conflict with the federal law’s civil enforcement remedies.

Managed care plans often use financial incentives to induce participating providers to provide high-quality, cost-effective care. These incentives include capitation payments, withholds, and bonuses for hitting budgetary or other performance targets, as well as financial incentives for improving or attaining specified levels of quality and efficiency. The ACA contains provisions to reward MA plans that demonstrate high quality (see this chapter’s section Health Care Coverage: Medicare—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.

Private Health Plans: Managed Care: Policy

Choice of options

In this policy: FederalState

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, and plan selection should be voluntary and at the consumer’s discretion.


In this policy: FederalState

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

National standards

In this policy: FederalState

Uniform national standards should be applied by states and the federal government to all forms of private health plans, including provider-sponsored organizations and PPOs. To the extent possible, these standards should be the same for all plans, and across all payers, including Medicare, Medicaid, self-insured plans regulated by 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. AARP supports comprehensive standards for all other public and private coverage plans, including ERISA plans and plans offered through state Medicaid agencies. AARP does not support 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 this policy: State

In the absence of national standards, states should enact a comprehensive set of rigorous standards comparable to those that AARP supports in Medicare (see this chapter’s section Health Care Coverage: 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. In the event a health plan’s network cannot meet the covered needs of an enrollee, the plan must make arrangements with non-participating providers/institutions at a cost that is no greater than the enrollee would be charged for in-network services.

Health plans should be required to provide out-of-network referrals at no additional cost to the enrollee if the health plan has neither a network physician with appropriate training and experience nor affiliation with a recognized specialty-care center to meet the enrollee’s covered medical needs. Consumers with mental disorders should receive appropriate referrals to mental health specialists.

Surprise billing

In this policy: FederalState

Policymakers should enact safeguards to protect consumers against surprise bills from non-network providers who provided 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 accuracy of provider directories;
  • requiring insurers and providers to provide consumers with meaningful disclosures of out-of-network providers; and
  • other protections.


In this policy: State

All health plans must be financially sound. Financial standards should address solvency requirements, including requirements for capital reserves that take into account 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.


In this policy: State

Women should have direct access to obstetricians and gynecologists and be allowed to designate these physicians 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 this policy: State

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 furnished with information about how to obtain a new provider.

Enrollees who are 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 the option of continuing with their previous physician specialist, and to existing enrollees if their previous physician specialist is terminated by the health plan for reasons other than cause.

Managed care liability

In this policy: State

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 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 harm that was 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.


In this policy: FederalState

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. (For additional policy, see this chapter’s section Reforming the Delivery of Health Care Services—Privacy and Confidentiality of Health Information.)

Data collection and reporting

In this policy: State

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 as 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 performance of participating physicians, hospitals, skilled-nursing facilities, home health agencies, and pharmacies;
  • credentialing;
  • utilization management or appeals regarding use of out-of-plan services;
  • accessibility, including wait times for appointments and numbers of practitioners accepting new patients;
  • rates of physician turnover;
  • enrollment and disenrollment; and
  • race and ethnicity and language preference.

Ombudsman programs

In this policy: State

Consumers should have access to an independent, nonprofit ombudsman program and 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 and/or state funding as needed.

Such programs should assist consumers in understanding plans’ marketing materials and coverage provisions, help assess information on quality, educate enrollees about their rights within health plans, help 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.


In this policy: State

To ensure strong and effective oversight, states should allocate sufficient resources and personnel to the regulation of managed care organizations. 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.

In states where more than one agency has authority to regulate managed care organizations, the agencies should coordinate their activities to facilitate effective oversight.

Consumers should be represented on health plan decisionmaking and advisory bodies.

State task forces that study managed care should include enrollees, prospective enrollees, and other consumer representatives.

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.

(For policy on private health plans in Medicare, see this chapter's section Health Care Coverage: Medicare—Medicare Advantage.)