Health plan competition improves quality, right? Right???

One of the latest charges against Obamacare is that its cuts to Medicare will harm quality. There is some reason to be concerned about that. An as of yet unexplored (in the media I consume) issue is what a more privatized, competitive Medicare will do to quality. What’s your guess?

Well, frankly, I had no idea what competition does to quality in the health insurance market. The paper “Does Competition Improve Health Care Quality?” by Dennis P. Scanlon, Shailender Swaminathan, Woolton Lee, and Michael Chernew (HSR, 2008) has an answer: not much, but this is also not an extensively studied area of empirical health economics.

(Aside: If you don’t know what HEDIS and CAHPS are, follow the links. Suffice it to say, they’re among the standard instruments for measuring health plan quality, though by no means the only way to do so.)

Empirical evidence relating HMO competition to HMO quality is sparse (Schoenbaum and Coltin 1998; Morrisey 2001; Gaynor 2006). Several studies investigating factors related to HMO quality have focused on specific health plan or enrollee traits but have not incorporated market traits such as HMO competition (Himmelstein et al. 1999; Zaslavsky, Landon et al. 2000; Born and Simon 2001; Landon et al. 2001). Other literature has examined the percentage of variation in HEDIS and CAHPS measures attributable to the region, the market, or the health plan, without relating the variance to specific plan or market attributes (Zaslavsky, Hochheimer et al. 2000).

Scanlon et al. (2005, 2006a) examine whether market and plan characteristics are related to HEDIS and CAHPS performance using a cross-sectional design. Although careful to explore the sensitivity of results to inclusion of important covariates, the results are subject to bias if there are unobserved market traits correlated with both HMO competition and plan quality. The studies find no evidence that competition is associated with quality or improvement in quality over time.

So much for the lit review. What do the authors find?

The strategies that promote competition among HMOs in the current market setting may not lead to improved HMO quality. It is possible that price competition dominates, with purchasers and consumers preferring lower premiums at the expense of improved quality, as measured by HEDIS and CAHPS. It is also possible that the fragmentation associated with competition hinders quality improvement.

I believe competition can reduce Medicare costs. Based on the above, I am not convinced it would improve quality. It is not unreasonable to retain the hypothesis that it would reduce quality. This is just another reason why we need more research in health care. Do you feel comfortable gambling with the health and lives of nearly 50 million Medicare beneficiaries? Me neither.*

* Obamacare is a gamble too. Among the few certainties in life is that nothing is certain in health care policy.


Born, P. H., and C. J. Simon. 2001. ‘‘Patients and Profits: The Relationship between HMOFinancial Performance and Quality of Care.’’ Health Affairs 20 (2): 167–74.

Gaynor,M. 2006. ‘‘WhatDoWe Know about Competition and Quality in Health Care Markets?’’ NBER Working Paper #12301.

Himmelstein, D. U., S. Woolhandler, I. Hellander, and S. M. Wolfe. 1999. ‘‘Quality of Care in Investor-Owned vs. Not-for-Profit HMOs.’’ Journal of the American Medical Association 282 (2): 159–63.

Landon, B. E., A. M. Zaslavsky, N. D. Beaulieu, J. A. Shaul, and P. D. Cleary. 2001. ‘‘Health Plan Characteristics and Consumers’ Assessments of Quality.’’ Health Affairs 20 (4): 274–86.

Morrisey, M. A. 2001. ‘‘Competition in Hospital and Health Insurance Markets: A Review and Research Agenda.’’ Health Services Research 36 (1, part 2): 191–222.

Scanlon, D. P., S. Swaminathan, M. Chernew, J. Bost, and J. Shevock. 2005. ‘‘Health Plan Performance: Evidence from Managed Care Insurance Markets.’’ Medical Care 43 (4): 1–9.

Scanlon, D. P., S. Swaminathan, M. Chernew, and W. Lee. 2006a. ‘‘Market and Plan Characteristics Related to HMO Quality and Improvement.’’ Medical Care Research and Review 63 (6, suppl): 56–89S.Schoenbaum, S. C., and K. L. Coltin. 1998. ‘‘Competition on Quality in Managed Care.’’ International Journal for Quality in Health Care 10 (5): 421–6.

Zaslavsky, A. M., J. N. Hochheimer, E. C. Schneider, P. D. Cleary, J. J. Seidman, E. A. McGlynn, J. W. Thompson, C. Sennett, and A. M. Epstein. 2000. ‘‘Impact of Sociodemographic Case Mix on the HEDIS Measures of Health Plan Quality.’’ Medical Care 38 (10): 981–92.


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