Competition and Health Care Policy: Experience and Expectations

Since 1970 federal policymakers have tried to strengthen competition and incentive-based market forces as alternatives to regulation in containing health costs. The effort to stimulate the growth of health maintenance organizations (HMOs) throughout the country has had limited results, and federal plans to promote competition by enacting changes in the health insurance market have so far come to little. Coalitions in some localities have shown growing interest in flexible HMO variants, however, and the intellectual force of the HMO critique of mainstream practices remains strong. Moreover, the federal government has shown new interest in prospective reimbursement of hospitals—a proposal that draws from both HMOs—competition—and hospital rate-setting programs—regulation—the element of prospectivity.