Potential Public Expenditures Under Managed Competition

Editor's Note: The analysis presented here was initially developed to facilitate discussion at the Princeton symposium on managed competition from which many of the papers in this volume are drawn. Its intent was to provide information on the cost implications of the various subsidies and program structures under consideration. However, the estimates presented here are highly sensitive to assumptions about consumer behavior, reimbursement levels, and the overall effectiveness of managed competition. Time and resource constraints prevented the authors from performing the type of sensitivity analysis that many analysts believe should accompany such a paper. Despite this omission, the analysis provides valuable information on the relative cost impacts of alternative specifications of managed competition proposals; it should be useful to policymakers as they shape a program of health system reform. Abstract: This DataWatch estimates the public cost of providing universal coverage under a managed competition model. First, a uniform benefit package is specified; next, the lowest-cost premium for this coverage is estimated, based on average costs in a well-managed health maintenance organization (HMO). Based on these estimates, the cost of premium subsidies and tax revenue effects are determined. It is estimated that if coverage is extended to currently uninsured persons using these estimates and assumptions, spending for these persons will increase 73. 9 percent over current levels. The authors estimate a net increase of 47. 9 billion in 1993 health spending under a managed competition program with low patient cost sharing. This includes savings of 4. 5 billion from wider use of managed care and 11. 2 billion in administrative cost savings.