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Prices and Productivity in Managed Care Insurance

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  • David M. Cutler
  • Mark McClellan
  • Joseph P. Newhouse

Abstract

Integrating the health services and insurance industries (HMOs) could lower expenditure by reducing either the quantity of services or unit price. We compare the treatment of heart attacks and newly diagnosed chest pain in HMOs and traditional plans in two data sets. The nature of these health problems should minimize selection, and OLS and instrumental-variable estimates yield consistent results. HMOs have 30 to 40 percent lower expenditures than traditional indemnity plans. Actual treatments and health outcomes differ little; virtually all the difference in spending comes from lower unit prices. Managed care may yield substantial productivity improvements relative to traditional insurance.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6677.

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Date of creation: Aug 1998
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Publication status: published as David M. Cutler, Mark McClellan, and Joseph P. Newhouse. “How Does Managed Care Do It?” RAND Journal of Economics 31, 3 (Autumn 2000): 526-548.
Handle: RePEc:nbr:nberwo:6677

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  1. David M. Cutler & Sarah J. Reber, 1998. "Paying For Health Insurance: The Trade-Off Between Competition And Adverse Selection," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 113(2), pages 433-466, May.
  2. Cutler, David M, 1995. "The Incidence of Adverse Medical Outcomes under Prospective Payment," Econometrica, Econometric Society, Econometric Society, vol. 63(1), pages 29-50, January.
  3. David M. Cutler & Mark McClellan & Joseph P. Newhouse & Dahlia Remler, 1996. "Are Medical Prices Declining?," NBER Working Papers 5750, National Bureau of Economic Research, Inc.
  4. Joseph P. Newhouse, 1992. "Medical Care Costs: How Much Welfare Loss?," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 6(3), pages 3-21, Summer.
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Cited by:
  1. Sarah Feldman & David Scharfstein, 1998. "Managed Care Provider Volume," NBER Working Papers 6523, National Bureau of Economic Research, Inc.
  2. Marisa Miraldo, 2007. "Hospital Financing and the Development and Adoption of New Technologies," Working Papers, Centre for Health Economics, University of York 026cherp, Centre for Health Economics, University of York.

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