Mark Pauly and Marc L. Berger
Why Should Managed
Care Be Regulated?
The economic metamorphosis of private health insurance in a little more than a decade has been accompanied by an equally amazing political transformation. Managed care went from bipartisan embrace to near-universal scorn, attacked in both state and federal capitals by populist politicians, targeted by physician associations of the left and the right, and subject to critical exposés nightly on national TV.
We share the general predisposition of most Americans toward reliance on private markets rather than government to allocate resources for the production of goods and services. Health care, of course, is fundamentally different from other goods and services, but we postulate that markets ought to drive allocation of medical care services if they function well or can be made to function well (assuming government makes transfers to help those unable to afford as much care as society deems appropriate).
Because state and federal governments thus far have not provided as large a transfer as needed to achieve universal health insurance coverage, the sociopolitical problem of the uninsured regrettably has not been much affected one way or another by the managed care revolution.
The users of privately financed managed care so far have been overwhelmingly the middle-class (upper and lower) nonelderly, and so it is to their welfare that we should look in evaluating the effects of managed care and possible regulatory interventions. We