Which Managed Care Differs From Conventional Insurance?

Helen Skeates
Helen Skeates
15 min read

How does managed care differ from traditional insurance in one key respect? Well, it’s the risk one takes when one decides to get insurance. Some of you may be considering what kind of insurance coverage might be best for you and your loved ones, and I’d like to provide some guidance. Of course, in modern times, some form of insurance coverage is preferable than none at all.

Having insurance means you’ll have a safety net and quick access to funds if you experience the kind of inevitable accident that happens to people every day.

We certainly don’t want to be short of funds just when we need them most! If we’re talking about health insurance, it’s especially important that you have a firm grasp on the details involved.

Difference Between Managed Care and Conventional Insurance

There is a lot to be learned by contrasting managed care insurance with traditional insurance. How does managed care differ from traditional insurance in one key respect? The assumption of risk stands out as the single most consequential factor.

What Is One Aspect In Which Managed Care Differs From Conventional Insurance? - Krostrade

First, though, we should familiarize ourselves with Managed Care and Traditional Insurance.

Managed Care Insurance

If you’re looking for a way to cut costs on medical treatment without sacrificing quality of service, Managed Care Insurance may be the way to go. However, you were limited in your ability to select your own doctors and hospitals. This means that you will be forced to accept whatever medical care is available, regardless of your preferences regarding doctors or hospitals. In turn, the Managed Care insurance will handle the vast majority of your medical care requirements.

Point-of-Service (POS), Health Maintenance Organization (HMO), and Preferred Provider Organization are the three major categories of managed care plans (PPO).

We should get to know each of them individually.

#1. POS

POS goes by several names due to its flexible nature. Various features of traditional health insurance, health maintenance organizations, and preferred provider organizations are all rolled into one policy. What does this mean, then?

Take the characteristics of each category in turn. The POS Plan members could choose the point of service of choosing the doctor or hospital with or within the contract of the insurer.

When it comes to cost and coverage, though, you may want to rethink your decision. When users use providers outside the POS plan’s provider network, they are not fully covered. If you get medical care from a provider outside of the network, you’ll have to pay a larger portion of the bill (called “coinsurance”).

#2. HMO

HMO members pay a monthly cost similar to that of traditional insurance plans in exchange for comprehensive health care coverage.

#2. PPO

PPOs, on the other hand, provide discounts on services from healthcare providers with whom they have contracts. Simply put, the insurer negotiates discounted rates with certain medical service providers in order to pass those savings on to policyholders and members.

This PPO’s members will pay less than the going rate for the service. Some customers favor PPOs because they give them more flexibility in selecting preferred medical services, for which they will be charged a lower out-of-pocket expense.

What is an example of a managed care plan?

An HMO is a type of managed care plan (Health Maintenance Organization). Care in HMOs is tightly regulated. The HMO will provide the most value for your money. You can only see doctors in your own area, but that helps keep prices down. You must also have a primary care physician (PCP) who handles all of your medical needs. Several other popular medical coverage options also qualify here.

What is a managed care organization?

Managed care organizations, also known as MCOs, are businesses or insurance plans that use the managed care delivery model to control healthcare costs without compromising on patient outcomes.

What are the features of managed care plans?

What follows are the most typical components of many health care plans. Examples of managed care include:

Some medical insurance policies stipulate that you see doctors within their network or else you won’t be reimbursed for any services. If you have an HMO, for instance, you can only see doctors who are part of the HMO’s provider network. Consequently, the cost to you is reduced.

  • Incentives for preventive care are commonly included in managed health care plans. In general, your health insurance plan will pay for all of the costs associated with maintaining your health, including regular checkups, screenings, and necessary vaccinations. Why? Regular checkups allow doctors to see potential health issues before they progress to more serious ones and cost more to treat. When members of a health plan are offered free preventive care, they have a strong motivation to do everything they can to be healthy.
  • If you don’t already have one, your health insurance plan can require you to select a primary care physician (PCP). Primary care physicians (PCPs) may serve as gatekeepers, requiring patients to see them before seeing specialists. Your primary care physician (PCP) plays a crucial role in a managed care system because of this. In the event that you require further medical attention, your PCP will be able to refer you to the appropriate experts and facilities, frequently within the same network. This is another way in which your care is being coordinated for your benefit.

In order to make an approval or denial decision, your insurance company may request more information from your provider as part of a prior authorization. The necessity of a more expensive treatment, such as a specific surgical procedure or a specialist drug, becomes clearer.

  • If you have prescription drug coverage via your health insurance, your plan’s coverage for generic drugs may be greater than that for brand-name drugs. This is another another standard function of health care management systems. Generics are far less expensive than brand-name drugs since they use the same active components but a different formula. This contributes to the aims of managed care by reducing expenses without compromising on the quality of care or the efficacy of medications provided to patients.

HMO, PPO, POS, EPO: What's the Difference?

How does managed care work?

In order to offer treatment to their members, managed care plans rely heavily on preexisting provider networks. A health plan’s availability to residents of a certain area is denoted by the size of the provider network that services its members. Participants in such networks have committed to providing their services at discounted rates. If you see doctors who are part of your health plan’s network, the insurance company will cover more of the costs. In other cases, you may not get reimbursed at all if you see a doctor who is not part of your plan’s preferred network.

Is PPO/HMO a managed care plan?

Managed care plans include both HMOs and PPOs. If you’re looking for the cheapest option and don’t mind being restricted in your care, an HMO might be for you. In order to receive coverage, for instance, you have to stick to doctors who are part of the plan’s network and can therefore accept your insurance.

If you have a PPO, you can go to any doctor you choose and they will still pay for it, but it’s more cost-effective to stick with those in their network. Because of this additional freedom, PPOs typically charge more than HMOs. The goal of both types of strategies is to maintain efficiency and affordability.

Commonly used models in the medical industry include managed care. Managed care elements are included in the vast majority of health plans and significantly contribute to controlling costs while maintaining or improving care quality.

Conventional Insurance

In contrast to the previously mentioned Managed Care Insurance, the options you select determine how your coverage will be handled under a Conventional Insurance plan, also known as Traditional Health Care Insurance. When you have traditional health insurance, you can see any doctor or hospital that accepts your plan. In other words, you’d have the freedom to pick the medical facility and practitioner who would take care of you.

However, insurance companies typically reimburse policyholders for out-of-pocket expenses, so you might have to pay the bills out of pocket at first. Additionally, the insurance provider will only pay out the specified amount in your policy.

Some people may benefit more from buying health insurance through the exchanges set up by the Affordable Care Act. There is a possibility that medical services, such as testing and hospital stays, will incur a coinsurance price.

You should look into plans with additional coverage if you have a medical condition that necessitates frequent doctor visits, want to expand your insurance coverage, or are accident prone.

Employer-provided, self-employed, and COBRA plans are the three primary categories of health coverage available to Americans today. Your insurance premiums may be paid by your employer, yourself, or both.

Why conventional insurance is not Sharia Compliant

Some of the fundamental principles of an Islamic financial contract are at odds with aspects of conventional insurance. Three of these aspects have been singled out by Ulama (Shariah Scholars) as the primary reasons why conventional insurance is forbidden in Islam.

Riba or Interest

The fact that conventional insurance involves interest-based deals is the primary reason why it is forbidden. The insurance company typically invests the premium money it receives in accounts or securities that generate a return. The Sharia expressly forbids interest and considers it a major sin. Conventional insurance uses a mix of debt and equity to finance investments and operations; the loan typically carries interest payments.

Participation in other types of interest-based transactions is also inherent to the traditional insurance system. Clearly there is interest involved due to the fact that traditional insurance schemes are in fact bilateral commercial transactions, i.e. there is an exchange of money from both sides to the transaction in the event of a claim, and the amount of money exchanged is usually unequal. In addition, when a life insurance policy reaches maturity, the policyholder is entitled to receive a return of all premiums paid, plus interest. As a result, the traditional insurance system includes a variety of interest-based transactions.

Gharar or Uncertainty

The second reason why conventional insurance is forbidden in Sharia law is due to Gharar, or uncertainty. The Sharia forbids any business deal in which a key part of the deal is unclear and could potentially lead to a dispute in the future. This type of deal is known as gharar. As a result, a transaction containing an element of Gharar is forbidden if there is any uncertainty about the selling price, the object being sold, or the payment/delivery deadlines. For this reason, future-dated sales contracts are not allowed.

In conventional insurance, there is also a degree of unpredictability. Experts in Sharia law identify four distinct kind of doubt. To wit:

  1. In the name of Allah, peace and blessings be upon you (Al-Gharar fil wujood). In this context, “uncertainty” refers to doubts about whether or not the thing being bought or sold even exists. The sale of a slave who has escaped is typically used as an example of this form of gharar because the slave’s presence at the time of the sale is unknown. Traditional insurance policies feature this type of gharar, wherein the insured sells his risk to the insurer in exchange for payment in the event of a loss.
  2. The Holy Quran, or Al-Garar fil husool. This alludes to the unpredictability that comes up throughout the contract’s acquisition. An individual cannot sell a fish that he has not yet caught because of the inherent unpredictability of his possession of the fish. When purchasing traditional insurance, the insured “sells” his loss to the insurer without knowing if the insurer will truly “acquire” the loss.
  3. “Al-Gharar for the poor” That which is uncertain is the monetary value of whatever is the subject of the contract. In conventional insurance, the insured is likewise uncertain of the amount the insurer would pay him in the event of a particular loss, as the insurer will only pay him in line with the damage he has experienced, at the time the contract is concluded. You wouldn’t learn this until after suffering such a devastating setback.
  4. All hail in the name of Allah (Arabic: , Al-Gharar fil ajal). As used here, “gharar” refers to the element of surprise that could arise with respect to the delivery date of the subject of the contract. Therefore, it is not legal to sell a foetus because it is impossible to know with certainty when the animal will give birth. This kind of doubt is also present in traditional insurance, where the policyholder doesn’t know for sure if and when a loss will occur, and so be eligible to make a claim for compensation.

Therefore, in typical insurance, the policyholder signs a bilateral contract with the insurance firm and pays a regular premium. This premium is based on a loss or misfortune happening in the future, which may or may not happen. The Islamic law, the Sharia, forbids any ambiguity in monetary dealings. In exchange for a guarantee of future benefits, the policyholder gives up control over the premium. The premium is the property of the corporation, and any earnings therefrom are reported as such. That’s why Sharia law forbids any kind of bilateral deal in which one party’s obligations are subject to the occurrence of some future condition or uncertainty. It could be argued that Islamic Insurance also contains this unknown factor; however, we will explain why this is not the case with takaful.

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Maysir or gambling

A bet is a form of contract in which one party’s payment is guaranteed while the other’s is not.

Maysir, often known as gambling, is the third major factor that makes regular insurance forbidden in Islam. There’s no way to classify insurance as a gamble. Traditional insurance policies, however, are structurally similar to gambling. This is because there is no guarantee that the insured would ever get any “consideration” for payments made. This is analogous to a bet in which both parties stand to gain something from the other, but one will lose everything if the event in question does not occur. Insurance does not include winning a certain amount of money, but it does involve being compensated for a loss of unknown magnitude. Therefore, there is a striking resemblance to gambling. The insured may have paid only a single premium but is now entitled to substantial damages payments. But he may pay premiums forever without ever getting the chance to cash in on his policy. Therefore, conventional insurance is similar to gambling in that the rewards or obligations of either side are unknown. Only if money changes hands as part of a commercial transaction would there be any reason for doubt or the possibility of loss, as in gambling. To rephrase, the deal is a business transaction between two parties. Maysir would not apply, however, if only one party, without receiving any compensation in return, promises that they will compensate the other in the event of a certain loss. Inshallah, when we talk about Takaful, your mind will be put at ease if you have any lingering doubts about whether or not this is a problem in Islamic insurance as well.


If you’re wondering how managed health care is different from traditional insurance, it’s in who takes the financial hit in case of an accident. I’m confident that you’ll be able to make an informed decision about your health insurance options now that you know about them all.

To get the most out of your money, you need know which one is practical, cheap, and would provide the greatest advantage. It’s natural to want these perks for oneself. Indeed, who wouldn’t want that?

Helen Skeates

Helen Skeates

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