What Is an MCO Plan?

A managed care organization or MCO is a group of health industry companies and professionals that work together to provide health care at affordable rates and at the same time control the costs of providing these services. Some of the goals of an MCO are to deliver high quality health care when it is medically necessary and to render the services by the most appropriate health care professional. MCOs also oversee how health care professionals are reimbursed for their services. Generally, people refer to MCOs a a "health plan."

One phrase you'll hear in conjunction with MCOs is Health Maintenance Organization, typically abbreviated to HMO. An HMO is an MCO that creates a provider network by entering into contracts with healthcare providers. These providers consist of physicians, hospitals and other healthcare professionals. The providers benefit by receiving referrals from the HMO and the plan members benefit because of the discounted rates that the HMO offers. Members are limited to providers who are part of the network to enjoy the discounted rates.

Preferred Provider Organizations or PPOs are less restrictive than HMOs in the choice of health care provider. PPO members typically don’t have to get a referral to see a specialist and are not restricted to use a provider who is part of the PPO’s network. In exchange for these benefits the PPO gives the members economic incentives to use in-network providers. The financial incentives include lower deductibles, and lower co-payments. If the member elects to use an out-of-network provider, he may have to pay as much as 50 percent of the provider's fees.

Point-Of-Service or POS Plans encourage, members to choose a primary care physician (PCP). Members can choose either an HMO or PPO option each time they seek health care. The PCP is the only provider who can make referrals if the member needs to see a specialist. Members can use another physician for a referral but end up making greater co-payments and have higher deductibles. POS plans offer more flexibility and freedom of choice than HMOs.

A fee-for-Service or FFS plan is a traditional type of plan that allow spatients the most freedom in choosing a health care professional. Anytime they need medical attention, members can choose any doctor or health care provider they want. The provider receives a fee for each and every service, visit and procedure after the provider has filed an insurance claim for each covered expense. Members in the FFS plan pay significantly more for the greater degree of flexibility that the plan provides.