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 individuals. 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, and consumers. 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.