Managed Care Organizations and the Rationing Problem

By Baily, Mary Ann | The Hastings Center Report, January-February 2003 | Go to article overview

Managed Care Organizations and the Rationing Problem


Baily, Mary Ann, The Hastings Center Report


By and large, neither bioethicists nor economists have offered a satisfactory account of how managed care organizations should ration health care. Both disciplines would like to guarantee adequate care to all without defining adequacy. But it cannot be done. The more we rely on market forces to distribute health care, the more we need a national standard of care.

The role of organizations in health care financing and delivery has increased in recent years, in response to technological change and cost containment pressures. These organizations are more likely to be for-profit enterprises than in the past, and whatever their profit orientation, they must cope with radically altered financial incentives and constraints. These changes have attenuated the public's trust in health care organizations, and generated genuine confusion on the part of those who run them about what they should be doing. As a result, we now have an active public debate on organizational ethics in health care.

I want to look at a key topic in this debate, namely, the role of managed care organizations (MCOs) in health care rationing. I will consider two questions: How should managed care organizations determine the standard of care they guarantee? and What role should physicians play in rationing in a managed care environment? I will take up these questions from the contrasting perspectives of bioethics and economics and argue that there are fundamental contradictions between the market framework within which MCOs must operate and the way bioethicists and economists think about the ethical obligations of the managers and physicians who work in them. Either the economic framework or the conceptualization of ethical obligations must be changed. The optimal policy is to change both.

The Nature of the Rationing Problem

The definition of rationing is controversial. For my purposes here, the term means that we limit the beneficial health care an individual receives by any means--price or non-price, direct or indirect, explicit or implicit. (1) The necessity for rationing health care is also controversial. It is obvious that scarcity requires limits on goods in general, but many people would like health care to be an exception. Still, most people realize that the benefits of health care form a continuum, from saving a life to eliminating a minor inconvenience, and they acknowledge that exempting health care from any limits would cost too much--we would have to sacrifice too many of the benefits that could be obtained from alternative ways of using the resources put into health care.

Rationing must occur for reasons of both efficiency and equity. The efficiency argument is based on the economics of insurance. Health insurance is the market response to two facts--that a person's desired expenditure on health care depends on his or her state of health, and that one's state of health is uncertain. In a given year, one person's desired expenditure could range anywhere from a portion of one paycheck to a sum that exceeds annual income.

By buying health insurance, people can "pool" this financial risk; they pay a fixed sum in the form of the insurance premium into the pool and then are able to draw on the pooled funds to pay for health care. The risk-pooling works because the health care expenditures of the entire group are more predictable than those of any individual in the group. Insurance provides subscribers with valuable peace of mind; however, it introduces inefficiency into decisions about the use of care. When insurance pays the bill, people consume health care as if it were free, rather than weighing the benefit of a particular service against its cost (as they do for the other goods and services they buy and consume). The health care is not free, of course, since the premium must be set high enough to cover the total cost of the health care provided to the entire group. (2) To obtain the security of health insurance at an affordable cost, it is prudent for subscribers to agree to reasonable limits on their use of care. …

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