State health care expenditures under competition and regulation, 1980 through 1991.

OBJECTIVES: This paper examines health expenditure growth under two alternative policy approaches: competition-based managed care and state government rate regulation. METHODS: Data are presented on cumulative growth in real per capita health expenditures between 1980 and 1991 so as to compare California, a state with a pro-competitive policy, with the US average and with four states with established regulation programs. RESULTS: Real per capita expenditures for hospital services in the United States grew 54% between 1980 and 1991, while in California the growth was half the national rate, or 27%. Real per capita expenditures for physician services and drug expenditures in the United States grew by 82% and 65%, respectively, while in California these expenditures increased only 58% and 41%, respectively. California's growth rate was below that of all four regulatory states for all measures of health care cost inflation. CONCLUSIONS: On the basis of these findings, a properly structured competitive approach could play a significant role in controlling health expenditures in the United States.