Controlling health care costs: strengthening the private sector's hand

The council on Wage and Price Stability recently has discovered evidence suggesting "an unackonwledged potential of the private sector to exert influence and control in the area of health care cost inflation." This article examines the limitations on private-sector cost-control efforts and suggests actions which would permit and encourage private decision makers to be more effective. In particular, private health insurers' potential role in cost control is explored, and some promising insurer strategies are adumbrated. Carefully designed coverage limitations and plan-initiated reviews to exclude nonessential care from coverage are suggested, together with wider use of fixed indemnity payments or negotiated fees and charges (instead of paying unusual and customary rates or incurred costs). Among the steps needed to permit insurers to provide this added service to cost-conscious customers is enforcement of the antitrust laws to prevent doctors' organized resistance to unwanted measures. In general, it is argued that private-sector efforts are likely to be more effective than government-sponsored controls as well as more appropriate in a pluralistic society.