EBRI Issue Brief
Health Care Reform: Managed Competition and Beyond
- Since the election, the health care
reform debate has focused on three broad features:
implementation of managed competition, changes in the tax
treatment of health insurance, and the imposition of
budget caps or targets.
- The basic element of managed
competition is the creation of sponsors who act as
collective purchasing agents for large groups of
- One of the potentially most
politically difficult issues in implementing any health
care reform proposal is likely to be defining the minimum
standard benefit package. It will determine the costs
society bears, the income of providers, the health of
many individuals, and the attributes of a workable health
care reform package.
- Managed competition is intended to
foster competition among health plans on the basis of
cost and quality. The measures of quality actually
employed in the health care system will determine in
large part the incentives faced by insurers, providers,
- The problem of adverse selection is
potentially the most important issue in reforming the
health insurance market. If individuals can opt not to
purchase health benefits, poorer risks will be more
likely to purchase health insurance than good risks, and
at minimum the price of these benefits will be higher
than would otherwise be the case.
- Managed competition requires that
individuals share at least some of the financial
consequences of their choices among health plans. As a
result, most managed competition proposals change the tax
code by limiting the exclusion of employer contributions
to health insurance from worker's taxable income.
- Changing the health insurance
market, mandating employer health benefits, and changing
the tax code may have significant effects on the health
care delivery system, but they are unlikely to reduce
health care cost inflation in the near term. One of the
proposals for restraining the growth in health care costs
is the imposition of a budget on the amount spent on
health care services.
- The combination of the constraints
placed on federal governmental action by the budget and
the significant political problems involved in reaching a
consensus on the important elements of health care reform
may limit the ability of the federal government to
implement national health care reform in the near term.
As a result, individual states may be encouraged by the
federal government to continue to experiment with their
own health reform programs.