You'll be in a better position to weigh the costs and benefits of Medicare managed care plans if you understand how insurance companies and doctors make money through them.

There are advantages and disadvantages to Medicare managed care plans. If you are trying to decide whether managed care is for you, it helps to understand how insurance companies and doctors turn a profit through these plans.

One way to understand the strengths and weaknesses of Medicare managed care is to view it as a betting system, with insurance companies acting as bookmakers, and plan members and doctors as gamblers.

The doctors and providers are also gambling. They are betting that the money they receive from the insurance company, plus copayments from patients, will cover the cost of care they provide under that plan and leave them, too, with a profit.

Finally, plan members -- the patients -- are betting that low premiums and copayments will add up to lower cost healthcare than with a medigap policy (private supplemental insurance). They are also betting that the extra hassles of managed care -- such as having to go through a primary care physician to get all other care -- are worth the savings. And they are betting that the lower cost of managed care does not mean they will get a lower quality of care.

Consumers can reduce the odds for themselves by shopping around for the best managed care deal. But the options are limited. Insurance companies tend to offer plans only in areas where they think profits will be high. As a result, as many as 25% of all Medicare beneficiaries, particularly those in rural areas, have no managed care plans from which to choose.

Doctors and hospitals try to raise their odds of making a profit by negotiating rates with the managed care plans, but they don't have much leverage against the huge insurance companies. In recent years, many doctors and other providers have dropped out of some managed care plans when they decided they weren't being paid enough for their services.

Managed care plans are structured to maximize insurance company profits. One of the ways they do this is by requiring all plan members to have a primary care doctor, who will prescribe treatment or refer you to a specialist only if he or she thinks it is absolutely necessary. Plans structure payments to primary care doctors in such a way that it is more profitable for them to care for you themselves, rather than to refer you to a more highly-paid specialist.

Forcing patients to go through their primary care physician before seeing a specialist legitimately eliminates some wasteful costs. And cutting down on long hospital stays can also eliminate some unnecessary expense. But, overall, managed care plans set their standards for treatments, referrals and hospital stays with an eye towards total costs. As a result, several studies from the Journal of the American Medical Association show that referrals for surgery, the rate of inpatient versus outpatient care and the length of hospital stays were all consistently lower with managed care plans than with traditional fee-for-service insurance.