We can think of intermediaries as working to be successful by hunting around for the right mix of tools, mixing and matching, trying to find successful combinations. Over time, a lot of different combinations have been tried and some general versions of them have come up often enough that they've been given names. We have what we might call stereotypical combinations or stereotypical plan types or plan designs that have arisen and have gotten named and thus often shape our discussions. We'll look at a few of the most common ones here, and we'll do that in the context of private insurers in the US, which has had a pretty active history in this space. One type we'll call traditional insurance, sometimes people say traditional indemnity insurance in the insurance jargon. This is classic, you might say old school health insurance, though maybe some people would disagree. It was the main form of insurance offered in the US back into the 1980's and earlier, but it's much less common now. This stereotypically involves minimal use of the tools. Traditional plans are basically open panel, any provider participates and they're generally paying fee for service. No gatekeepers, limited use of utilization review, and pretty generous coverage. The one thing that these plans did use sometimes was patient cost-sharing, though even some of the early versions didn't use a lot of that. Pretty generous, even wide-open coverage. Another model is an HMO. HMO stands for Health Maintenance Organization. The term has become a bit of jargon really, but at the time the term emerged in the 1970's, it was meant to convey that these were health plans particularly focused on prevention and maintenance of health, perhaps distinguished from other traditional insurers, they would've seen as more focused on treating people once they got sick and less on helping keep them healthy. Maybe that ethos still persists in HMOs today to an extent, but I also think it's fair to say that lots of intermediaries today are interested in keeping people healthy. HMOs emerged in the '70s and '80s mainly, and have continued to be a factor today as health care costs was starting to rise along with concerns about quality in the US. People started looking around for alternatives to traditional insurance that could help. The history of this can be quite interesting to look into if you like, but we'll have to keep moving here. HMOs are in many ways the opposite of traditional indemnity insurance. They're making much more use of the tools. They would stereotypically have a well-defined network and a closed panel, they're more likely to use capitation when they can or other financial incentives that shift risk to physicians or hospitals, and make them more sensitive to the costs of providing care. They're more likely to use gatekeepers, and more likely to use utilization review. Since they're using lots of other tools to manage utilization, they can often have relatively limited cost-sharing, stereotypically, no deductibles, and low copayments. A result of this can be that they reduce health care costs, and depending on exactly how they do it, some HMOs are really good at leveraging the tools to also steer toward higher-quality care. When a plan picks a set of providers for a network, sees to it that the patients use those providers and constructs things so that providers are incentivized to produce high-quality and managed costs, maybe they can get that done better than a traditional plan. On the other hand, it requires the use of the tools more strongly, which some patients and some providers might not like. A particular concern for some people has been HMOs use of closed panels and gatekeepers, which can feel restrictive to some people. In between traditional and HMO falls another stereotypical type of plan called a PPO. PPO stands for Preferred Provider Organization. This has also become a bit of jargon now, and we'll just take that as a name for a stereotypical type of plan. PPOs can be thought of as trying to keep some of the structure of HMOs, but give patients more choices. Some key differences are that stereotypically, a PPO defines a network but operates with a semi-open, semi-closed panel, so patients can go in network to doctors in the network with favorable cost-sharing but still have the option of out of network doctors with higher cost-sharing. PPOs are more likely to use fee for service for physicians and no gatekeepers, so again, more patient flexibility. PPOs do stereotypically end up using cost sharing much more than HMOs, so there will often be noticeable, deductibles, copayments, and the like. The end result is then a PPO somewhere in between traditional and HMO, it will tend to cost more and maybe less good at delivering nicely integrated care than the best HMOs, but there'll be more choices for patients and perhaps providers which might make it more popular. Have you heard the term managed care? This is a good time to mention that. This is a term that people define in lots of different ways, but one way of using it is to describe plan designs where the intermediary exerts some efforts to manage the care of its enrollees through the use of the various tools. This may be good enough definition for our purposes here. In that way, HMOs and PPOs as we've described them, would be examples of managed care plans. You'll find some others that would fit that definition too. Maybe you're sensing this, but one of the underlying issues here is a business imperative of private insurers in the US. They're out there trying to sell their insurance policies, and there's been a lot of back and forth over time as insurers search for things that will be successful in the marketplace, which involves trade-offs between the premiums and other attributes of the plans like patient flexibility. It's a dynamic that's constantly driving evolution in intermediary design. I just have to be careful and say this at the end here. We've talked about stereotypical, traditional HMO, and PPO plan designs. Of course, each specific plan out there gets to do its own specific thing, and so you'll find variety among plans calling themselves HMOs and among plans calling themselves PPOs and so on, even though they may share some of the main features in common. Lots of variety for us to pay attention to.
