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HEALTH The Evolution of Health Insurance

Nobody accepts a job offer today without wanting to know in detail what the health benefits are. Receiving comprehensive health insurance has become so important in people’s lives that employee benefit health plans now represent almost half of all compensation for many of today’s companies.

Having good health benefits is almost as important as earning a strong salary for employees with growing families. If they could choose only one benefit, the majority of American workers would choose health insurance coverage, according to Ann Black, author of the book, “New Era of Benefits Communication.”

Today, it is nearly impossible for someone to survive the financial blow of surgery and a hospital stay without health insurance. To reap the benefits of the tremendous medical technology now available, patients must be willing to accept ever-increasing medical costs. Fortunately, to curb the strain, health insurance is available for most people.

However, the cost for health insurance is rising, and with the move toward managed health care, flexibility for someone to choose his own doctors is somewhat limited. To receive adequate insurance and a plan that is right for an individual’s needs, it is crucial for one to fully understand his coverage terms. Choosing the wrong plan, or being uninformed about how health care has changed and how it affects each family differently, can be a costly mistake.

One way to understand managed health care is to also understand what it is and how it has evolved through the years. It has been a rapidly-changing revolution that has affected everyone from physicians and hospitals to patients and insurance carriers.

Managed care is a term that refers to health plans that involve selective contracting between insurers, health care providers and employers to direct employees to a specified group of cost-effective health care providers. “Fifteen year ago, it used to be that a person had an insurance provider that covered almost anything with no questions asked,” says Marc Maraccini, Vice President of Sales and Marketing at North Texas Healthcare Network, a non-profit managed network delivery system owned and operated by the Metroplex’s Baylor Healthcare System, Harris Methodist Hospitals, Methodist Hospitals of Dallas and Presbyterian Health Care System. “The patient could go to any doctor and get the problem taken care of. It sounds simple, but without proper regulation, the cost of medical care went up, outpacing inflation.”

Thus, the evolution of managed health care began.

Just a mere decade ago, most people received health insurance through a traditional indemnity or fee-for-service plan where an insurance company pays all or part of a bill for any physician, hospital or other health care provider a person chooses. With indemnity plans, it was difficult for employers to estimate how much they would pay for their employees’ health care, simply because a physician or hospital could charge almost any amount for a procedure or prescription. To better regulate the costs of medical care, major changes in health insurance have caused most people to receive coverage through their employer in a managed care plan. “Until managed health care, there weren’t any plans that truly regulated the industry,” said Sam Waugh, Director of Managed Care at Children’s Medical Center of Dallas.

With managed care, enrollees receive their health care from a specified group of approved doctors or hospitals known as provider networks. Often, enrollees in a managed care plan choose a primary care physician from the list who makes sure the enrollee receives routine medical care, such as regular checkups, and who refers them to specialists, if needed.

This practice saves money because unlike traditional plans, managed care plans contract directly with the health care providers to set payment for services. To join a provider network, most doctors and hospitals give managed care plans a discount from their standard fees. The managed care plans then offer their enrollees incentives, such as lower out-of-pocket costs, to use the the health care providers in the network. Costs are also lowered by restricting the use of more expensive services, such as hospital care.

Today, there are many types of insurance plans and carriers to suit a variety of needs. To make sure the patient’s needs are addressed first and to keep medical costs down for everyone, the health care industry is making a strong push to develop standards for treatment. “Nationwide, more and more groups are organizing to evaluate the effectiveness of medical procedures and determine if the procedures are as medically appropriate and cost-effective as possible,” says Maraccini. “This results in a higher quality of care for the patient and better cost-controls for the employer.”

While behind-the-scenes groups like these work to better health insurance standards, insurance providers are offering employers and families numerous coverage options. Choosing a plan that is best for an individual or family is a tough chore. Selecting a plan at random, without fully investigating it, could mean more out-of-pocket expenses or inappropriate care for a patient. Two of the most prevalent managed health care plans available today are Health Maintenance Organizations (HMOs) and Preferred Provider Organizations (PPOs). Both plans greatly differ, and it is solely up to an individual or family on which to choose based on what their employer offers.

An HMO offers a specific list of health services for a fixed monthly fee or premium. The patient receives reduced out-of-pocket costs and usually no deductible and typically pays a small co-payment at each office visit. HMOs are restrictive in that they have a network of approved physicians, and an enrollee must choose a primary care physician from that list. If the enrollee needs to see a specialist, they must get a referral from their primary care physician and they will not receive full benefits if they use a physician outside of the network.

With HMOs, an enrollee will receive 100 percent coverage for using a primary care physician within the network. “The rule is, ’Use our doctors and use our hospitals,’” Waugh says. There are different models of an HMO, such as a staff model or closed panel where HMOs employ their own doctors and operate their own clinics and hospitals. Another model is the Individual Practice Association which allows enrollees to receive medical care from their physician’s private office.

PPOs contract with selected doctors and hospitals in the community. PPO enrollees may use the doctors and hospitals within this network or go outside of the network for care. However, enrollees are given lower out-of-pocket costs to use doctors in a particular network. They must choose from a list of doctors, but they don’t have to see the same one each time. PPOs use provider selection standards, medical management and quality assessment techniques to monitor the physicians in the network. “PPOs are more flexible because if you and opt out and don’t choose a doctor in the network, you don’t completely lose your benefits like an HMO,” Waugh says.

Two other popular types of insurance plans are the Exclusive Provider Organization, or EPO, and the Point of Service plan, or POS. With EPOs, enrollees must visit a personal care physician from a panel of approved providers, but if they go outside the network, they will receive no benefits. A POS plan is similar to an HMO in that an enrollee’s care is managed by a primary care doctor from within the POS network, but like a PPO, POS enrollees may go outside of the network for care by paying a large portion of die cost. “The benefits get tighter and tighter,” Waugh says. “You go from a PPO to POS to HMOs.”

A new form of insurance, not offered by all providers, is the Medical Savings Account which works like an IRA. Members put money away every month to be used for out-of-pocket medical expenses not covered by their plan. The account grows just like any other interest-bearing account. The only stipulation is that the money must be used for purchase of policies or to pay co-pays or deductibles. The money is carried over year after year, thus allowing the account to grow.

The major changes in health care have affected families as well as physicians. The Metroplex’s craniofacial surgery leader, Dr. Kenneth Salyer, says it is difficult for him to watch families struggle to find the best health care within their medical plan for their children who are affected by craniofacial abnormalities. Dr. Salyer, an internationally recognized pioneer in craniofacial surgery and the founding chairman and director of the International Craniofacial Institute and the Cleft Lip and Palate Treatment Center at Medical City Dallas Hospital, says he understands the need for better health care regulation and cost controlling, but he is still hoping for a change in legislature that allows children with craniofacial abnormalities to seek the best in care, despite their medical plan’s stipulations.

“With the transition to managed care, there are children with craniofacial abnormalities who miss out on receiving the appropriate medical care because they are unable to go to the best physicians simply because they are not on their HMO’s list of approved doctors,” Dr. Salyer says. “Since only one in 700 babies are born each year who are affected by this, by managed health care standards, it is an insignificant number. This means there is a limited chance it will be covered. And if their plans do cover it, it may not be the best care available. Not just any doctor can perform the kind of surgery that is needed.”

With all of the looming questions in parents’ minds and the various forms of insurance available today, it is not surprising that many people become confused about which plan to choose. According to Maraccini, many people are surprisingly uninformed when it comes to understanding their own health care plans. “It takes a cooperative effort between the employees, employer and insurance carrier to make sure that plan options are understood and employees get the plan best-suited for their needs.”

Waugh says that from a hospital’s standpoint, fully investigating a potential insurance provider is always a good idea. Children’s Medical Center of Dallas contracts with a least 45 major insurance companies throughout the Metroplex, so he knows what potential enrollees should expect from them. When someone is looking for a plan to cover themselves or family, they should first get the company to send them their membership handbook, annual report, a copy of a recent member newsletter, an enrollee contract and the results of any member satisfaction survey. He also recommends talking to coworkers or community members to see which plans have worked well for them.

Maraccini also suggests checking out the location of insurance providers to make a better-informed decision. “It’s good to choose a provider who knows the community and its patterns and who has a vested interest in the community,” he says.

Another measure to take is to make sure the plan is federally qualified by the government and has the certification of approval by an outside agency, such as the National Committee for Quality Assurance. “You need to become familiar with how they operate and how responsive the company is to your questions and needs,” Waugh says.

To avoid pitfalls when selecting an insurance provider, Maraccini recommends a person look closely at his family’s health care needs. There are a numerous important questions to ask. “Make sure your plan has reputable hospitals,” Maraccini says. “If your primary care physician is not in the plan’s network, are the plenty of other choices? If a member of your family has special health care requirements, does the plan’s covered benefits meet those needs? Are there specialists to provide the necessary care? What kind of preventative care is offered?”

Both Waugh and Maraccini suggest employees ask their human resources director for information when they are unsure of which plan to choose. They can direct an employee to an expert affiliated with the plan who can answer important questions. “Often, people just settle and choose a physician who is close to where they live or work because they are familiar with the area,” Waugh says. “That physician may not be the one who is right for you. Further investigate your possibilities. I know 1 want to receive the- highest quality health services for my family. Isn’t that what everybody should want?”


As part of it’s on-going commitment to improving the health anil well-being of it’s tier 300,000 Of? members, United HealthCare has introduced Heal Diary and it’s companion effort, Health Diary Direct.

Health Diary is a new publie television series that examines health and well-being from the members point-of-view. Sample stories include: Glaucoma, chronic fatigue syndrome, childhood leukemia, and successful aging. The first airing of this weekly program was Monday, September 21st at 7:30 p.m. on KDTN, Channel 2.

This fall United Healthcare’s commercial membership also received a Health Diary Direct introductory mailing metaling a Health Topics Checklist, which encouraged mem kits to choose up tn five topics of greatest Merest to them. Topics ranged from exercise and fitness, to specific conditions such as cancer and diabetes, to life stage issues like osteoporosis. On a Quarterly basis all numbers wit1 receive informational packets along with product samples, coupons, or discounts customized to meet the needs of those individual members.

“We are committed to giving people the support they need to manage their own health,” said Rick Cook, CEO for United Healthcare’s North Texas operations. These programs were developed based on enrolée survey feedtank staling members want more individualized attention from their heath plans.


Imagine, if you will, i physician’s office where the doctor isn’t tailing day-to-day operations, no worries about staffing, billing, office overhead and the M work -managed care. This physician’s office is one of tie many that falls under a Practice Management arrangement. Kathy Sheets, Vite President of Physician Services for Columbia North Tanas Division, and President of Texas Healthcare Network, Inc., explains the general principles of a managed practice, “Practice management handles the day-to-day operations of the physician’s practice, which includes: facilities management, accounts payable, managed care contracting, billing, collections, human resources, and marketing. The services give the physicians more time to focus their energies on die clinical aspects of the practice, and to dedicate more time and energy to the care of their patients.”

“Our network consists of Texas Healthcare Network, Inc., a 501(a) not-for-profit taxable entity, certi-fied by the Texas State Board of Medical Examiners, and a group of ’ala carte’ managed practices. It is predominantly a primary care vehicle, which includes, but is not limited In: family practice, internal medicine, pediatrics, and OB/GYN. We are geographically dispersed through the DFW area. Many of our physicians accept Medicare and Medicaid, as well as other managed care plans.” Ms. Sheets points out the high rate of patient satisfaction held by her managed practices. “We ere very excited about our second quarter patient satisfaction surveys which shewed our patients rating their physicians in the following categories: Knowledge of Hedicine-99%; Explanation of your condition-94%; and Friendliness and Courtesy-96%. This shows our communient to patient care and how dedicated our doctors are to their patients.”

Some other aspects of managing these practices is getting benchmark comparisons to national industry norms in regard to the following: staffing and productivity so that we can identify the best practices for improvement of operational performance and mirror It to other practices we manage. The number of physicians we manage gives os the benefit of group purchasing discounts and in turn giving a discount to the patients we serve-thus the saying “strength in numbers.”

Ms. Sheets will tell you she is proud of the physicians she manages. “It’s great to see the doctors do whit they do best, which is to practice medicine, and if our organization can help, I want to do everything I can to see this happen.”

’Surveys by Lone Star Research June 1998


Provided by Children’s Medical Center of Dallas

National Committee for Quality Assurance

21100 L. Street N. W., Suite 500 Washington, O.C. 20036 (202)955-3500

NCQA can give you a free listing of managed care plans in the U.S. that have been certified, are currently under review or have been denied certification. This list is updated monthly

National Association of Insurance Commissioners

120 West 12th St., Suite 1100

Kansas City, MO 64105

(816) 842-3600

NAIC can give you the address and phone number of the insurance commissioner in your state. You can then call your state commissioner to find out if any complaints have been filed against the managed care plan during the past year.

Health Care Financing Administration Center for Health Plans and Providers

7500 Security Blvd., S3-02-01Baltimore, MD 21244 (410) 786-4164

The Center for Health Plans and Providers at HCFA can tell you if a managed care plan is federally qualified.


Provided by North Texas Healthcare Network

When searching for a health insurance plan that best suits your family’s needs, it is likely that some confusing terminology will arise during your research. The following is a definition list of some commonly used terms often affiliated with managed health care:

Managed Health Care – The sector of health insurance in which health care providers are not independent businesses run by the private practitioner, but by administrative firms that manage the allocation of health care benefits. In contrast with indemnity insurers, who do not govern the provision of medical services and simply pay for them, managed care firms have a significant say in how services are administered so that they may better control health care costs.

Alternative Delivery Systems – An expression formerly used to describe all forms of health care delivery systems other than traditional fee-for-service indemnity health care.

Case Manager – An experienced professional, usually a nurse, physician or social worker, who handles catastrophic or high-cost cases as a member of a utilization management team. Case managers work with patients, providers and insurers to coordinate all health care services.

Copayment – A fee charged to HMO members to offset costs of paperwork and administration for each office visit or pharmacy prescription filled.

Direct Contracting – A contractual relationship between a health care provider and an employer, in which services are provided on a predefined price schedule in exchange for the purchase of services in defined volume. Direct contracting creates a more direct relationship between the health care provider and the employer.

Fee for Service – Traditional provider reimbursement in which the physician is paid according to the service performed. This is the reimbursement system used by conventional indemnity insurers.

Health Plan Employer Data Information Set (HEDIS) – A set of performance measures designed to help health care purchasers understand the value of health care purchases and measure the performance of multiple health plans.

Hospital Alliance – A group of hospitals that have joined together to improve competitive positions and reduce costs by sharing common services and developing group purchasing programs.

Network – A defined group of providers, typically linked through contractual arrangements, which supply a full range of primary and acute health care services. A closed network is one in which beneficiaries are not allowed to access non-network providers whereas an open network allows access to other providers at some cost to the beneficiary.

Preferred Providers – Physicians, hospitals, and other health care providers who contract to provide health services to persons covered by a particular health plan.

Self-Funding – Also known as self-insurance, self-funding is a health care plan funded entirely by employers who do not purchase insurance. Self-funded plans may be self-administered, or the employer may contract with an outside administrator for an administrative-services-only arranagment.

Third-Party Administrator – An organization that is outside of the insuring organization that handles the administrative duties and sometimes the utilization review. Third-party administrators are used by organizations that fund the health benefits, but do not find it cost effective to administrate the plan themselves.

Utilization review – Performed by the health plan to discover if a particular physician-provider is spending as much of the health plan’s money on treatment, or any specific portion thereof, such as speciality referral, drug prescribing, hospitalization, radiologic or laboratory services. This study helps determine if a physician will obtain any of the money in the withhold fund at the end of the health plan’s fiscal year.

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