Health Insurance

Managed Competition in 2018

Alain Einthoven is the father of managed competition.  In a recent Health Affairs article, he and Laurence C. Baker look ]at managed competition in California and ask whether the standard conception of managed competition needs to be altered.

Before we get to the article, we first need to ask a basic question: what is managed competition?  The authors claim that there are a few core principles:

First, individual consumers choose their own plans from among a set of health plans…Second, consumers who choose more costly plans pay the full premium difference. That is, if one plan costs $100 more per month than another plan, consumers choosing the more expensive plan pay the $100 out of their own pockets. Third, the market in which health plans are offered and chosen is structured to promote competition in terms of price and quality and minimize the potential for market segmentation and adverse risk selection. For example, information about quality of care is collected and made available…Plan contracts are standardized, facilitating comparisons based on price and quality…A risk-adjustment program is used to compensate plans that end up enrolling patients who have greater expected costs than patients who enroll in competing plans. The premise of managed competition is that in the presence of these conditions, powerful market forces will incentivize insurers to develop high-value products.

One other item I did not fully appreciate was that the Einthovenian conception of managed competition requires fully integrated delivery networks.

As originally conceptualized, managed competition envisions consumers making choices from among health care delivery systems that are well integrated with insurers and do not have overlapping provider networks [my emphasis].

Einthoven and Baker admit that while some insurers (e.g., Kaiser Permanente) are integrated, in most cases insurers share provider networks.  While they continue believe that integrated care is best, the reality is we are a long way from dueling integrated insurance-provider networks.  The article does show some interesting developments though:

Vivity is a new health maintenance organization (HMO) partnership between Anthem Blue Cross and a number of hospitals and provider organizations, including UCLA Health, Cedars-Sinai, Good Samaritan Hospital, Huntington Memorial Hospital, MemorialCare Health System, and Torrance Memorial Medical Center—all prominent names in Southern California health care. Vivity does not have a structure that strongly integrates the insurer and providers, but it moves toward integrated incentives by sharing financial risks and gains among the partners, and it has announced efforts to work toward more integrated care management and the use of electronic medical records, as well as of better methods for integrating care across member systems.

An optimist would say that more integration leads to better quality care; a pessimist would say that this is simply more market concentration that providers are using to increased negotiating power with payers.

One of the main problems with the managed competition ideal is that consumers in the U.S. hated it in the 1990s.  However, Einthoven and Baker argue that the problem was that consumers were given one main choice of plan with limited networks.  The authors argue that with insurance choice, this would be less of a problem.  I am skeptical however.  What happens when your prefered primary doctor is in network but preferred specialist is out of network.  People did not like that.  Perhaps in the long-run, your doctors would largely be within your insurance network (e.g., the Kaiser model), but if that were the case, then it would be problematic for patients to switch insurers even if another plan was high quality/low cost, since the doctors a given individual patient likes are already in another insurers network.

While my comments above are largely critiquing some of the limitations of managed competition, overall, I think it can be a useful way to bring market discipline to health insurance choice.  As quality is difficult for consumers to measure, managed competition does risk being a race to the bottom.  However, if consumers and patients can’t make their own choice about what health care they should get, who can?


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