Managed care health plans provide a different system of health care than traditional health insurance, which is also known as indemnity insurance.  Under indemnity insurance coverage, the insurer pays a certain percentage of the charges billed by the provider, after the patient meets a deductible, and the patient is responsible for the balance of the provider´s bill.  This is also known as "fee-for-service" insurance because the provider is paid a separate fee for each procedure or service performed.

In a managed care system, health plans combine insurance coverage with the provision of care.  Managed care plans are prepaid health plans, meaning the member pays a monthly premium and, in exchange, the plan provides comprehensive care for that member and his or her family, including doctors´ visits, hospital stays, emergency care, surgery, lab tests, x-rays, and therapy. Because health plans receive a fixed fee for the covered medical care, it is in their interest to make sure patients get the right care at the right time, in the right setting.  There is a focus on wellness and prevention - caring for problems before they become serious.

In a managed care plan, health services are provided or coordinated by a primary care physician who is part of the plan´s network.  Primary care physicians act as partners with their patients, helping them to get all the medical care they need and referring them to specialists, when necessary. With fee-for-service, patients are generally free to choose any provider - primary care or specialist - who will see them.