A healthcare carve out separates specific services or benefits from a health plan’s main coverage, managing them under a different arrangement. This practice is common in modern health insurance design. It treats certain categories of medical services as distinct financial and administrative entities, separate from general medical coverage. This structure means that while an individual is covered by one overall health plan, different parts of their care may be administered by entirely different organizations.
Defining the Healthcare Carve Out
A carve out involves the formal separation of specific medical services or a population from the primary insurance carrier, often called the “host plan.” These services are contracted out to a specialty vendor or a third-party administrator (TPA) with expertise in that area. This separation divides the management and financial risk. The host plan retains responsibility for general medical claims, while the specialty vendor assumes the financial and administrative risk for the carved-out services in exchange for a fixed fee or premium.
This arrangement allows the primary insurer to transfer financial volatility associated with high-cost services to a specialized entity. The specialty vendor builds its own provider network, manages utilization reviews, and processes claims. The carve out creates a distinct, parallel system of coverage that operates independently from the main medical plan’s infrastructure.
Services Most Frequently Carved Out
The concept of a carve out is applied to several benefit areas.
Common Carved-Out Services
- Pharmacy Benefits: These are the most common example, managed by a Pharmacy Benefit Manager (PBM). The PBM handles drug price negotiation, formulary management, and claims processing for prescription medications, separate from the medical coverage for the physician visit.
- Behavioral and Mental Health: This area, including substance abuse treatment, is often managed by specialized organizations. This separation means a patient’s therapist may be in a different network than their primary care physician.
- Dental and Vision: These benefits are routinely carved out due to their low integration with core medical services and the specialized nature of their provider networks.
- High-Cost Specialty Services: These services are isolated to manage financial risk and can include complex procedures like organ transplants, certain types of oncology care, or specialized durable medical equipment (DME).
Strategic Reasons for Carve Outs
Payers, such as insurance companies or self-insured employers, implement carve outs for distinct strategic and financial reasons.
Key Strategic Motivations
One primary motivation is achieving better Cost Control and Predictability for specific high-expense services. Specialized vendors often have greater leverage and focused expertise in negotiating lower prices, such as a PBM negotiating with drug manufacturers.
This strategy also serves as Risk Management by isolating services with high-cost potential or highly variable utilization rates. Transferring the financial risk to a specialty vendor for a predetermined fee stabilizes the primary plan’s budget and improves expense forecasting.
Specialty vendors bring Specialized Expertise that the general medical plan may lack. They possess deeper knowledge regarding network management, utilization review protocols, and specific regulatory compliance requirements.
How Carve Outs Affect Patient Experience
While carve outs are designed for administrative efficiency, they introduce complexity for the insured individual.
Patient Challenges
Patients often encounter Administrative Logistics challenges, managing two or more separate insurance cards and customer service phone numbers. The patient must correctly identify which vendor is responsible for which service before seeking care.
Carve outs create complications regarding Network Access. The specialty vendor maintains its own provider network, separate from the main medical plan’s network. A patient must verify coverage with two different systems, limiting their choice of provider for carved-out services.
This separation can lead to Coordination of Care difficulties when a patient requires services from both the main plan and a carved-out vendor. For example, a primary care physician prescribing medication may struggle to communicate effectively with a behavioral health specialist using a different claims system.
Finally, patients may face confusion with Billing and Claims. They can receive multiple Explanations of Benefits (EOBs) and bills from different entities for related services, making it challenging to track deductibles and co-pays across various benefit silos.