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Managed Care: Linking Health Care with Health Insurance

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At around 3.6% of the GDP, health spending in India (inclusive of Out-of-Pocket expenditure)  is both low and fragmented (Ashraf & Mor, 2020). To improve health outcomes, our spending on health needs to increase. Additionally, an increasing proportion of our health spending needs to be financed through pooled funds that will allow for sharing risks better. While it is necessary to increase health spending and the size of pools, it is equally important to improve the performance of existing pools, both government and privately held. For better performance of these pools, purchasing of health services using pooled funds needs to be strategic. Currently, payment to providers primarily takes the form of fee-for-service where providers are paid for the quantity of services provided. In such a system, there is an incentive for providers to profit from increasing the quantity of services, which may not result in much to improve health at higher costs and can, at worst, negatively impact health outcomes. The asymmetry in the information that exists in the provider-patient relation, where the latter has little to no knowledge of the amount of care required adds to the problem. These issues point towards a disconnect between health insurance and healthcare functions. There is clearly a need to shift from the current inert payment models to more outcome-based payment models. Managed care is one such model that has increasingly been receiving global attention. In this post, we examine the concept of managed care and attempt to understand its relevance in the Indian context.

What is managed care?

Managed care can be defined as “a variety of methods of financing and organising the delivery of comprehensive healthcare in which an attempt is made to control costs by controlling the provision of services” (Iglehart, 1992). A managed care organisation (MCO) refers to any entity providing/ arranging for coverage of health services needed by members of a plan for a fixed, prepaid premium (Sekhri, 2000). This can be a group of providers or insurers or private entities who contract with private sector employers and government programmes to manage the health benefits of employees or enrollees. The concept of managed care emerged in the United States in response to its increasingly resource-consuming and fragmented healthcare system. It was originally developed in the early 1900s by railroad, mining and lumber companies that organised their own medical services or contracted with medical groups to provide care for their workers(Fairfield et al., 1997). Managed care has since evolved and taken different forms in diverse attempts to manage cost and quality of care. Given its constant evolution, managed care can be better understood as a continuum than a discrete entity (Fig.1). In all the different forms they take, managed care organisations within the system to ensure they contain costs and improve quality (Fairfield et al., 1997).  

Figure 1: Continuum of managed care (Kongstvedt, 2012)

Table 1: Spectrum of care

Debates around managed care

Managed care comes with a promise of a better quality of care at lower costs, premised on a suitable modification of physician behaviour that is effected through the contractual arrangement between the insurer and the provider with HMOs being the purest manifestation of this. In other words, managed care is fundamentally about some level of integration between these two entities so as to deliver on the promise of lower costs and better quality care. It is to be noted, however, that managed care has not delivered on this promise, either within the United States or in countries that imported some variety of the US model (Weiner et al., 2000), and this has led to some degree of backlash against managed care. Resistance from physicians to the model was a major reason for the failure to realise managed care’s promise. The idea of external control over medical decisions, sometimes even by non-medical entities (e.g. insurers), is something many found concerning. Physician opposition to managed care also led to a distrust of the model by consumers. Added to this were fears that an over-focus on cost containment could lead to denial of care itself.

Studies examining the impact of managed care on health outcomes provide mixed evidence (Abadia & Oviedo, 2009; Miller & Luft, 1997; Peabody & Luck, 2002; Sekhri, 2000; Vargas et al., 2013; Weiner et al., 2008). On balance, existing evidence does not uniformly paint managed care as either a beacon of hope or a cause of concern. The highly diverse nature of managed care itself is one reason that it is difficult to arrive at a conclusive verdict on the performance of managed care. A lack of clarity on how this performance can be measured exacerbates the problem.

Lessons for India

With an entire universe of managed care models to pick from, extrapolating a particular model (that may or may not have worked in a different context) to the Indian context would be a futile exercise. Instead, the potential for managed care in India should be explored in terms of the core principles of managed care and how a model that is context-specific to India can be framed around these principles. A healthcare system informed by the basic principles of managed care (Sekhri, 2000):

  1. monitors and coordinates care through the entire range of services (primary care through tertiary services)

  2. emphasises prevention and health education

  3. encourages the provision of care in the most appropriate setting and by the most appropriate provider (e.g., outpatient clinics versus hospitals, primary care physicians versus specialists);

  4. promotes the cost-effective use of services through aligning incentives (e.g., by capitation of providers, cost-sharing by consumers)

This comprehensive outlook to healthcare that managed care provides can be useful in making purchasing more strategic. These principles can be applied to improve the performance of not just commercial pools but also government pools, including Employees’ State Insurance Scheme (ESIS) (Sowmini & Ghosh, 2020) as well as the nascent Ayushman Bharat Pradhan Mantri Jan Arogya Yojana (AB-PMJAY). For managed care principles to be effective as a policy tool in improving the performance of pools, strong information systems is a key prerequisite. The same systems may also be used to evaluate the effectiveness of managed care models.  Further, strong accountability measures are necessary to avoid repeating the mistakes made in adopting a managed care models elsewhere. Regulatory structures will need to layout well-defined guidelines on what is expected of the system. Monitoring mechanisms and time-bound goals against which performance can be compared will also need to be laid out. This will require greater coordination of efforts between the insurance regulatory body (IRDAI) and the ministry of health (MoHFW). Adoption of a well-regulated system of managed care can lead to more health-focused, consumer-centric insurance structures, with clear cost and quality benefits for the insured. Demonstrably better performance of health insurance could also then have the added benefit of drawing more people into the fold of insurance.

[i] No exclusive contract with MCO; physicians are allowed to accept patients not within the MCO. Additionally, the payment mechanism offers flexibility in service provision.

[ii] Exclusive contracts with MCO. Capitation mode of payments also gives limited financial freedom to physicians. To reduce variability in expenses they may incur, the provider will have to focus more on preventive and primary care.


Abadia, C. E., & Oviedo, D. G. (2009). Bureaucratic Itineraries in Colombia. A theoretical and methodological tool to assess managed-care health care systems. Social Science and Medicine, 68(6), 1153–1160.

Ashraf, H., & Mor, N. (2020). Status of Health Systems in India at National and Subnational Levels.

Fairfield, G., Hunter, D. J., Mechanic, D., & Rosleff, F. (1997). Managed care: Origins, principles, and evolution. British Medical Journal, 314(7097), 1823–1826.

Iglehart, J. (1992). Managed Care. The New England Journal of Medicine, 326, 742–747.

Kongstvedt, P. (2012). Essentials of Managed Healthcare.

Konjengbam, N. (2019, November 17). Lack Of Awareness Responsible For Low Health Insurance Penetration. Outlook Money.

Miller, R. H., & Luft, H. S. (1997). Does Managed Care Lead to Better or Worse Quality of Care? Health Affairs, 16(5), 7–25.

Peabody, J. W., & Luck, J. (2002). When do developing countries adopt managed care policies and technologies? Part I: Policies, experience, and a framework of preconditions. American Journal of Managed Care, 8(11), 997–1007.

Sekhri, N. K. (2000). Managed care : the US experience. 78(6), 830–844.

Sowmini, P., & Ghosh, I. (2020). Employee State Insurance Scheme – Performance and Potential Pathways for Reform.

Vargas, I., Unger, J. P., Mogollón-Pérez, A. S., & Vázquez, M. L. (2013). Effects of managed care mechanisms on access to healthcare: Results from a qualitative study in Colombia. International Journal of Health Planning and Management, 28(1).

Weiner, J. P., Famadas, J. C., Waters, H. R., & Gikic, D. (2008). Managed care and private health insurance in a global context. Journal of Health Politics, Policy and Law, 33(6), 1107–1131.

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