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Managed Care and the Growth of Medical Expenditures

In: Frontiers in Health Policy Research, volume 1

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  • David M. Cutler
  • Louise Sheiner

Abstract

We use data across states to examine the relation between HMO enrollment and medical spending. We find that increased managed care enrollment significantly reduces hospital cost growth. While some of this effect is offset by increased spending on physicians, we generally find a significant reduction in total spending as well. In analyzing the sources of hospital cost reductions, we find preliminary evidence that managed care has reduced the diffusion of medical technologies. States with high managed care enrollment were technology leaders in the early 1980s; by the early 1990s those states were only average in their acquisition of new technologies. This finding suggests managed care may have a significant effect on the long-run growth of medical spending.

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This chapter was published in:

  • Alan M. Garber, 1998. "Frontiers in Health Policy Research, volume 1," NBER Books, National Bureau of Economic Research, Inc, number garb98-1.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 9824.

    Handle: RePEc:nbr:nberch:9824

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    1. Joseph P. Newhouse, 1992. "Medical Care Costs: How Much Welfare Loss?," Journal of Economic Perspectives, American Economic Association, vol. 6(3), pages 3-21, Summer.
    2. Alan B. Krueger & Helen Levy, 1997. "Accounting for the Slowdown in Employer Health Care Costs," NBER Working Papers 5891, National Bureau of Economic Research, Inc.
    3. David M. Cutler & Mark McClellan, 1996. "The Determinants of Technological Change in Heart Attack Treatment," NBER Working Papers 5751, National Bureau of Economic Research, Inc.
    4. Wholey, Douglas & Feldman, Roger & Christianson, Jon B., 1995. "The effect of market structure on HMO premiums," Journal of Health Economics, Elsevier, vol. 14(1), pages 81-105, May.
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