Health Care in an Era of Managed Competition

By Blumengold, Jeffrey G.; Zeman, Michelle M. | The CPA Journal, November 1993 | Go to article overview

Health Care in an Era of Managed Competition


Blumengold, Jeffrey G., Zeman, Michelle M., The CPA Journal


The current climate of health care reform presents an ideal opportunity for employers, health care providers, insurers, and consumers to react to the transformations now occurring in the health care system, and to reevaluate their evolving roles, their interrelationships with one another, and their mutual involvement in every aspect of health care delivery: its cost, its quality, and its impact on patient satisfaction.

With the Clinton Administration beginning to expose the details of its plan for health care reform, the concept of managed competition will be a key ingredient to remedy our ailing, often inaccessible, and increasingly costly healthcare system.

Managed competition is an idea conceived by Alain C. Enthoven of Stanford University, nurtured by an informal think tank of health care professionals in Jackson Hole, Wyoming, and adopted as the basis of the Clinton Administration's health care reform package. It is a market-driven policy of regulated competition among insurance companies, with incentives for insurance carriers, physicians and other health care providers to improve quality, increase benefits, expand access, and control costs.

The pivotal idea within managed competition is the creation of large regional Health Insurance Purchasing Cooperatives (HIPC's), which would negotiate and coordinate health care coverage. These consortiums of employers and individual consumers, by virtue of the numbers of individuals they represent (in the hundreds of thousands or more), would have the leverage and the buying power necessary to generate healthy competition among health care plans. Premium costs would be borne by both employers and employees (probably in an 80/20 ratio), with the Federal government paying for the unemployed and those covered by Medicaid. Medicare could also be incorporated into the system at some point. HIPC's would pay annual fees to contracted health care plans based on enrollment; individuals would be able to choose from several health care plans, and would not have to change plans when changing jobs.

In The Logic of Health Care Reform, Paul Starr discusses three elements integral to managed competition's endurance:

1. Standard benefits to guarantee a minimum level of coverage (hospitalization, surgery, and office visits) and to facilitate comparisons of quality and value between health care plans;

2. Risk adjustment to require plans to accept all applicants, regardless of an preexisting medical conditions; premium amounts would be determined by each state under a community rating system, guaranteeing that the same premium would be charged to all, regardless of age, sex or prior medical history;

3. Price competition to compel plans to provide specific cost information to consumers and employers; tax credits for employers would only apply to the cost of the least expensive plan; more comprehensive packages would be available to consumers at additional cost.

Such major changes to the health care system under managed competition will impact most intensely on the traditional, independent, fee-for-service physician. …

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