Cost-Cutting Mechanism at Heart of Health Debate : Managed care: Plan ends financial incentives for tests, services. Critics say quality could be compromised.

If you are not one of the growing numbers of people who have enrolled in a managed care health plan, chances are good you soon will be.

Managed care systems are expanding rapidly, each year enrolling more clients from public and private insurance plans. Conversely, the number of persons in traditional health insurance plans, the indemnity plans that allow individuals to choose their own physicians, is shrinking.

The two best-known managed care programs are health maintenance organizations, such as Kaiser Permanente or Cigna, and preferred-provider organizations, which are networks of physicians who contract with various insurance plans to provide services to plan members at fixed rates.

In both cases, employers or individuals pay fixed rates, usually on a monthly basis, and members of the plans are guaranteed treatment services either at no extra cost or for nominal co-payments.

Under the traditional indemnity form of health insurance, employers or insurance companies bear all the financial risks for medical care. That system allows patients to choose their own doctors. In turn, the physicians bill the insurers for whatever services they provide. Employers pay all the bills.

*

Critics say this system contributed to the soaring costs of health care because no one has an incentive to save.

Employers and others who pay the bills are switching in large numbers to managed care plans, which divide the risk.

It works this way: Physicians under managed care plans receive payments on a monthly basis or at prearranged rates. In a key departure from traditional indemnity plans, managed care allows them to receive payments for healthy patients enrolled in the plans. But it also requires them to treat patients for serious illnesses, even though the member’s dues may not cover the costs of the care. Thus the risks are shared because HMOs and physician networks are gambling that the healthy patients in their plans will make up for the extra costs associated with sick ones.

Supporters say managed care switches the incentives. By going from a system where physicians make more money for each service they provide to a fixed-fee basis, they have incentives to keep the patients healthy and avoid problems that could lead to expensive, long-term treatments. Even when employers assume most of the risk, the belief is that the extra case management provided by managed care programs will mean fewer duplicative tests and reduce doctor shopping.

*

The flip side of those arguments represent the main points of criticism by opponents of managed care. They say patients may be denied treatments because each extra service represents an extra cost to the HMO. They say that by reducing the choices of patients to select their doctors, these plans may be sentencing many people to indifferent, impersonal and unsatisfactory physician care.

Many physicians, though resigned to the growth of managed care, prefer the indemnity system because it allows them to establish close relationships with patients. It also creates a healthy competition to provide good care, they say, because unsatisfied patients can shop around for another doctor if they are unhappy.

Many physicians, characteristically independent, also are alarmed at the prospect of becoming employees of managed care plans, rather than being allowed to remain independent practitioners. Aside from the possible loss of income, they say the corporate structures present many problems, including the need to be conformist and abide by medical policies set by boards that may not represent their views.

For minorities, there are fears that they may be excluded from employment or be given a reduced workload by the “gatekeepers” who assign cases and watch costs. Some HMOs distribute booklets with photos of their doctors, which they admit could prompt some people to choose their doctor on the basis of race or other visual factors.