The health insurance industry operates through two types of organizations: independent insurance companies and managed care organizations. Independent insurance companies offer traditional plans where a certain amount or percentage of medical costs are reimbursed in exchange for regular monthly payments to the company, which is called “a premium.”
Unlike traditional insurance providers, managed care organizations (XLV) enter into a contract with a set of health care providers, called the plan’s “network,” to provide care for members at reduced costs.
The above graph shows the combined number of PCPs (primary care physicians), SCPs (specialty physicians), and hospitals in Aetna’s provider network.
Aetna reimburses the PCPs participating in its network on both a fee-for-service basis and capitation basis. In a fee-for-service payment method, physicians are paid for services provided to members at a fixed rate for the services provided.
Capitation is a form of risk sharing arrangement where the physician receives a monthly fixed fee for each member. This method closely aligns the financial incentives of the physician and the managed care organization, as lower medical costs help physicians earn higher profits. Aetna, however, uses capitation only in certain geographic areas and in case of HMO offerings.
Managed care organizations such as Aetna (AET), Humana (HUM), Cigna (CI), and Anthem (ANTM) use capitation payment methodology to pay PCPs because they act as gatekeepers in an HMO network. Individuals enrolled in an HMO can seek specialty care only if their PCPs refer them, thus making the PCPs directly responsible for the HMO’s medical service utilization. Aetna reimburses its specialist physicians at contracted rates per visit or per procedure.
Aetna typically pays the hospitals in its network on a per-day or per-case basis and generally has fixed rates for ambulatory, surgery, and emergency services. The company also monitors the length of stay of the patients to control wasteful usage of services. Aetna uses the fee-for-service model to pay laboratory, imaging, urgent care, and other freestanding health facility providers.