A hitchhiker's guide to competitive managed care

Competition among managed care plans features the dynamic interaction among three primary forces: delivery system integration, managed care health plan risk sharing, and purchaser activism. To evaluate the cost containment potential for a particular market, decision makers need to understand the character of provider integration, the role of managed care insurance plans, and the extent of purchaser activism in contracting with health care providers. This paper provides benchmarks that analysts can use to assess markets, and applies them to the four largest markets in Wisconsin. It concludes that competition among managed care plans can lead to cost-effective care only if purchasers respond to differences in cost, for given quality, by switching from high-priced plans to lower-priced ones.