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How Does Managed Care Do It?

Author

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

Abstract

Integrating the health services and insurance industries, as health maintenance organizations (HMOs) do, could lower expenditure by reducing either the quantity of services or unit price or both. We compare the treatment of heart disease in HMOs and traditional insurance plans using two datasets from Massachusetts. The nature of these health problems should minimize selection. HMOs have 30% to 40% lower expenditures than do traditional plans. Both actual treatments and health outcomes differ little; virtually all the difference in spending comes from lower unit prices. Managed care may yield substantial increases in measured productivity relative to traditional insurance.

Suggested Citation

  • David M. Cutler & Mark McClellan & Joseph P. Newhouse, 2000. "How Does Managed Care Do It?," RAND Journal of Economics, The RAND Corporation, vol. 31(3), pages 526-548, Autumn.
  • Handle: RePEc:rje:randje:v:31:y:2000:i:autumn:p:526-548
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