Health Insurance and Public Policy: Risk, Allocation, and Equity

By Miriam K. Mills; Robert H. Blank | Go to book overview

Nevertheless, the Arizona program shows promise as an efficient health care delivery system. The Stanford Research Institute ( 1987) concluded that the AHCCCS program is less costly than traditional fee-for-service Medicaid programs, and HCFA has recognized the potential for efficient results. In 1988, HCFA approved the Arizona project for another five years.

The Arizona experience also suggests that efficient managed care plans developed in public Medicaid demonstration projects such as Arizona's have potential usefulness for addressing the problems of the uninsured in the private sector. AHCCCS plans in both urban counties in Arizona have recently offered health insurance to small employers having difficulty obtaining health insurance ( Aleshire, 1990). Expertise gained by the plans through experience in Medicaid delivery systems can provide a basis for directly marketing health care services to small employer groups or individuals employed in the secondary labor market. Future research should evaluate the outcome of this expansion.

Lessons learned in Arizona can inform policymakers and program designers in other states. With HCFA's encouragement, there is interest in establishing similar systems as a cost-containment measure and as a partial solution to the uninsured problem faced by small employers and the secondary labor market in other states. Although AHCCCS administrators continue to believe that the absence of a standard information system encourages competitive behavior, the analysis here suggests that states might encourage a larger number of competitors (and less vertical integration) if the state removes the transaction-specific entry barrier by assisting in the development of a specialized information system that fits the key features of the program. Competition could then focus on improving the efficiency of medical care delivery rather than consuming time and resources to duplicate information systems. This action could potentially encourage more bidders and more competition to bring down the cost of health care for the poor and other uninsured Americans.

The policy implications of this analysis should be interpreted with caution. As contracting conditions change, the comparative efficiency of structural arrangements may also change. If the information needs of AHCCCS and similar programs are clarified and stabilized, vertically integrated providers may no longer be the most efficient structural arrangement. With stable information needs, software vendors and management companies can develop systems and expertise through contracts with current AHCCCS participants and then make their services available at a competitive price to new entrants. In the future, other structural arrangements such as long-term contracts or quasi-firms may replace the vertically integrated organization.


NOTES
1.
The Medicaid program was introduced in 1966 as a federal-state matching program charged with providing medical care to the eligible indigent and administered by the Health Care Financing Administration.

-135-

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