Managed Competition: The Core of Health Care

By Rovner, Julie | Drug Topics, January 11, 1993 | Go to article overview

Managed Competition: The Core of Health Care


Rovner, Julie, Drug Topics


The emerging consensus for fixing the nation's ailing, inaccessible, and costly health-care system can be summed up in two words: managed competition. President-elect Bill Clinton has endorsed the concept. So have about 60 conservative House Democrats and some of the leading health policymakers in the Senate. The idea strongly influenced the health plan that President Bush offered in February.

But problems remain. For starters, no one seems to agree on what managed competition is-making it a kind of political Rorschach test in which lawmakers focus on just the parts that appeal to them. It has never been tried on a national level, although one managed competition program coordinates coverage for 800,000 California state employees and retirees. And even policymakers who agree that managed competition should be part of any systemwide reform disagree strongly about the tax and financing schemes needed to make the plan work.

Managed competition is not the same as managed care, which encompasses several types of health plans that seek to control costs by controlling or limiting the doctors that patients see and the specific medical services they receive. Examples of managed care are health maintenance organizations and preferred provider networks.

Rather, managed competition is a market-based plan that would preserve a role for insurance companies but would create incentives for them to provide the most effective health care in terms of price, quality, and benefits. Right now, it is virtually impossible for employers and other insurance purchasers to compare costs, because each plan offers dramatically different benefit packages. And there is virtually no way to compare quality or value for the dollar.

Alain Enthoven, a Stanford University economist and father of the managed-competition concept, testified before the Senate Finance Committee in May: "The goal of this strategy is to reward with more subscribers those health-care organizations that provide high quality care and control cost." Enthoven, other academics, and some health-sector executives have been refining the plan for several years, meeting periodically in a group member's home in Jackson Hole, Wyo. As a result, managed competition has become known as a product of the Jackson Hole Group.

HIPC--Leveling the field: At the heart of all managed-competition plans is a new entity called a health insurance purchasing cooperative (HIPC)....These organizations, which could be regional or statewide, would act as purchasing agents for insurance buyers (employers, public agencies, individuals) and as quality watchdogs for consumers.

Currently, health insurers and providers can charge practically whatever they want through a divide-and-conquer strategy; small groups of consumers simply cannot bargain effectively. …

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