How Does Managed Care Do It?

Mark McClellan, David Cutler and Joseph P. Newhous

Scholarly Articles from Harvard University Department of Economics

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 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.

Date: 2000
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Published in Rand Journal of Economics

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