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Abstract: Managed competition in health care is an idea that has evolved over two decades of research and refinement. It is defined as a purchasing strategy to obtain maximum value for consumers and employers, using rules for competition derived from microeconomic principles. A sponsor (either an employer, a governmental entity, or a purchasing cooperative), acting on behalf of a large group of subscribers, structures and adjusts the market to overcome attempts by insurers to avoid price competition. The sponsor establishes rules of equity, selects participating plans, manages the enrollment process, creates price-elastic demand, and manages risk selection. Managed competition is based on comprehensive care organizations that integrate financing and delivery. Prospects for its success are based on the success and potential of a number of high-quality, cost-effective, organized systems of care already in existence, especially prepaid group practices. As it is outlined here, managed competition as a means to reform the U.S. health care system is compatible with Americans' preferences for pluralism, individual choice and responsibility, and universal coverage.
Prologue: Health policymakers listening to presidential candidate Bill Clinton s proposals for health system reform may have felt a sense of déjà vu as he returned time and again to the theme of "managed competition' in his speeches. The term was familiar to many who had been following the speaking and writing of Alain Enthoven as he refined and articulated the concept. In Enthoven s construct, managed competition relies on a sponsor to structure and adjust the market for competing health plans, to establish equitable rules, create price-elastic demand, and avoid uncompensated risk selection. That sponsor could take the form of a health insurance purchasing cooperative, or HIPC, comprising members of the employer and consumer communities. Enthoven s definition of managed competition is a blending of the competitive and regulatory strategies that have coexisted uneasily for years in the U.S. health care system. As happens with many concepts that become election-year rhetoric, managed competition has come to mean different things to different people. In this essay Enthoven retraces the development of his ideas and particulates the principles of managed competition- including what managed competition is not. It is not, he says, "the latest buzzword that anybody should feel free to appropriate . . . [nor...