Enthoven’s “managed competition”

Alain Enthoven’s 1993 paper in Health Affairs on managed competition is slightly dated in its set-up (health care markets have changed a lot since then) but not in its prescription. Many ideas expressed are relevant today and embodied in provisions of the ACA and/or espoused by advocates for additional reform. I recommend a full read of the paper. Below are just a few passages worth highlighting, but it was hard to choose.

First, Enthoven makes an argument relevant to placing some cost risk on providers (as opposed to insurers, the government, or individuals):

[S]ick, nonexpert patients and their families are in a particularly poor position to make wise decisions about long lists of individual services they might or might not need. They need to rely on their doctors to advise what services are appropriate and on their health plans to get good prices. For economical behavior to occur, doctors must be motivated to prescribe economically.

However, he then swiftly puts the emphasis back on patients. The next sentence reads,

Managed competition is compatible with selected copayments and deductibles for individual services that can influence patients to do their part in using resources wisely and that are price signals patients can understand and to which they can respond.

Note the phrase “selected copayments and deductibles for individual services.” To me that suggests value-based insurance design, though he did not use that term.

In at least two places Enthoven argues for standardized insurance products, making exactly the same point I’ve made before–that it increases competition–and throwing in a bunch of others.

There are powerful reasons for as much standardization as possible. […] The first is to facilitate value-for-money comparisons and to focus comparison on price and quality. The second is to combat market segmentation–the division of the market into groups of subscribers who make choices based on what each plan covers (such as mental health or vision care) rather than on price. The third is to reassure people that it is financially safe to switch plans for a lower price with the knowledge that the lower-priced plans did not realize savings by creating hidden gaps in coverage. The fourth is that biased risk selection can reduce demand elasticity for health plans that enroll a favorable mix of risks.

He wisely notes that neither manged competition nor centralized global budgets are guaranteed to keep spending growth in check, something I agree with.

[T]here is no guarantee that managed competition will automatically hold spending growth to acceptable levels, even if implemented optimally. […] The health insurance and health services industries have an extensive history of market imperfections, not all of which will be corrected by managed competition. Very costly technologies might emerge. […]

Top-down global budgets, if imposed on capitation rates of integrated financing and delivery organizations, would avoid some of the worst inefficiencies and disincentives. But they would focus the whole health services industry on political efforts to raise or maintain the ceiling as a percentage of gross national product (GNP). […] Regulatory authorities are held responsible for the economic survival of the regulated entities. Hospital rate regulators are notoriously unwilling to force unneeded or inefficient hospitals to close. Insurance rate regulators are responsible for the solvency of insurers. So such regulation becomes cost reimbursement. […] Thus the history of such regulation is that it does not really lower cost to consumers.

Note also that from the above passage (my bolded section) we can see that Enthoven was thinking about ACO-related concepts.

And, finally, Enthoven tells us what managed competition is not.
(1) Managed competition is not a free market. A free market does not and cannot work in health insurance and health care. If not corrected by a careful design, this market is plagued by problems of free riders, biased risk selection, segmentation, and other sources of market failure. Managed competition uses market forces within a framework of carefully drawn rules. (2) Managed competition is not merely a “voucher” system (giving people a certificate and seeing if they can find insurance). In managed competition, sponsors work actively to perfect the market. Everyone is given an opportunity to enroll. (3) Managed competition is not deregulation. It is new rules, not no rules. […] (9) Managed competition is not a panacea. Its authors do not claim that it can solve America’s problems of racism, poverty, homelessness, the frail elderly, and others. […] Special programs, usually publicly sponsored, will be needed for special populations. If managed competition is successful, more public money will be available for them.
And, finally,
(10) Managed competition will not take until the year 2010 to transform health care financing and delivery in this country.
Oh dear! I’m afraid it will, in fact, take much longer.

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