What Is a Managed Care Organization (MCO)?
Key Takeaways
- Managed care organizations (MCOs) are often synonymous with Medicare Advantage.
- MCOs provide cost-effective healthcare by limiting provider networks and requiring pre-authorizations, commonly associated with Medicare Advantage and Medicaid.
- Medicare Advantage plans use MCOs to offer extra benefits like dental and vision, often through HMOs, PPOs, or POS plans, with HMOs being the most affordable but restrictive.
- Medicaid MCOs operate in most states, offering comprehensive care for a fixed monthly fee per enrollee, helping states manage healthcare costs while maintaining quality.
Managed care organizations (MCOs) describe health plans designed to deliver high-quality care while keeping consumer costs low through limited provider networks and pre-authorization requirements. Original Medicare plans do not involve “managed care.”
However, Medicare Advantage plans do, which explains why this term is often used synonymously with Medicare Advantage. The majority of states also use MCOs to manage and deliver Medicaid benefits.
Medicare Managed Care with MCOs
Medicare Advantage offers additional benefits to Medicare enrollees, such as dental, vision, and hearing services, for an additional cost through a private MCO. Managed care may include health maintenance organizations (HMOs), preferred provider organizations (PPOs), and point of service (POS) plans.
HMOs are generally favored for their lower premium costs, which are made possible by a limited provider network. PPOs, meanwhile, feature higher premium costs but offer more freedom in selecting care by having wider networks and out-of-network coverage. POS plans occupy a middle ground between the two with moderate premiums and moderate care flexibility.
The managed care model has become increasingly popular over the last decade. Enrollment in Medicare Advantage has HMOs accounting for more than half (56%) of all plans available to beneficiaries in 2024.
Key Features of Medicare Managed Care Plans
- Provider network: Provider networks are a key characteristic of managed care plans that enable them to offer discounted rates. HMO networks are the most limited to a local set of providers. In contrast, more flexible PPOs and exclusive provider organizations (EPOs) may offer more extensive networks or cover some out-of-network care.
- Designated primary care physician: HMOs and POS plans typically require enrollees to declare a primary care physician (PCP) as a condition of the policy, while EPOs and PPOs do not. Plans that require PCPs also typically require referrals to see a healthcare specialist.
- Prior authorizations: Prior authorizations are a common requirement among managed care plans. Many HMOs, PPOs, POS plans, and EPOs require enrollees to submit pre-authorizations. These confirm that certain procedures, treatments, or medications are necessary for the patient and should be covered by the policy.
- Preventive care emphasis: A fundamental principle of the managed care model, MCOs use preventive care as a cost-effective measure and public health initiative. Encouraging patients to undergo wellness checks, immunizations, and preventive screenings keeps consumers healthy and minimizes the need for more expensive treatment later on.
- Overall emphasis on reducing care costs: Beneficiaries willing to abide the limitations and additional requirements of a managed care plan can enjoy discounts on healthcare treatment and services. Managed care plans tend to offer more generic drug options as an alternative to costlier prescription medications.
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Managed Care Organizations With Medicaid
Medicaid is a joint federal and state program that provides healthcare to lower-income individuals, families, and those with disabilities. Medicare beneficiaries may also qualify for Medicaid based on their income. While the government implements some regulations at the federal level, each state manages its own Medicaid benefits, with the majority choosing to do so through MCOs. As of July 2023, 41 states used managed care plans to deliver Medicaid, with 74% of Medicaid enrollees in MCOs as of 2021.
MCOs operate slightly differently in terms of Medicaid than Medicare Advantage. Medicaid MCOs are paid a set monthly rate per beneficiary for covered medical care and services, which helps states offset the fluctuating care costs for Medicaid-eligible individuals. Beneficiaries who are dual-eligible for Medicaid and Medicare can enroll in a dual special needs plan (D-SNP). This separate, combined policy typically does not involve an MCO.
Key Features of Medicaid Managed Care Organizations
- Comprehensive benefits: In exchange for being paid a per-member (“capitation”) monthly rate, MCOs provide comprehensive benefits including acute and long term care as necessary. MCOs also coordinate care and services such as handling pre-authorizations and referrals to specialists on behalf of Medicaid beneficiaries.
- Focus on cost control: Managed care organizations offer a cost-effective solution for states to provide affordable, high-quality healthcare to Medicaid recipients. States negotiating their own rates with MCOs helps keep the state’s Medicaid budget balanced while also offering low rates for Medicaid recipients.
- Limited Medicaid MCO provider networks: The specific number of managed care plan options in each state varies, depending on the number of MCO contracts in that state. Like HMOs and other MCOs available through Medicare Advantage, Medicaid MCOs only cover benefits provided through the select local network specified in the policy.
How to Choose an MCO
- Decide which key factors are most important to you. Cost tends to play an important role in choosing the right MCO, especially when it comes to out-of-pocket expenses. You may be willing and able to pay an additional premium for a Medicare Advantage plan or you might qualify for free or low-cost Medicaid benefits. Other deciding factors might include the type and frequency of healthcare services you need, the range of your provider network, and the variety of options in your state.
- Compare Medicare Advantage or Medicaid plans. There are different types of MCOs for beneficiaries to consider when enrolling in a Medicare Advantage plan. Use Medicare.gov or work with a licensed insurance agent or broker to help see what plans are available in your area. For those who qualify for Medicaid, CMS.gov offers a similar resource for comparing managed care options in your state.
- Know your enrollment deadlines. You may enroll in a Medicare Advantage plan during your Initial Enrollment Period, the Annual Enrollment Period (October 15–December 7), the Medicare Advantage Open Enrollment Period (January 1–March 31), or a Special Enrollment Period, provided you meet the requirements. You may apply for Medicaid benefits at any time by completing an application including proof of income.
Putting It All Together
Managed care organizations focus on providing high-quality care at a reduced cost. Managed care is also synonymous with Medicare Advantage and accounts for most Medicaid plans. HMOs are the most popular type of Medicare Advantage coverage, typically offering the lowest rates in exchange for more limited networks and stricter PCP and referral requirements. MCOs also enable many states to offer free or low-cost Medicaid benefits through coordinated care.
Visit a licensed insurance agent or broker to learn more about your managed care options.