Managed Competition Research Paper

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This idea for the reform of health-care finances was conceived by Alain C. Enthoven of Stanford University and fostered by a think tank of health-care professionals in Jackson Hole, Wyoming. Managed competition formed the basis of the proposed health-care reforms of the Bill Clinton administration. The plan required the creation of large health-insurance purchasing cooperatives, which were designed to have the leverage to enforce competition among different health-care plans. Managed competition aims to maintain quality of service and protect universal criteria of provision while also containing costs.

This strategy of financial management for health-care organizations has emerged since the mid-1970s in a context of mounting costs resulting from the increasing demand for services, especially in societies where aging populations and the decline of the family have put greater strain on existing services and institutions. Managed competition can be technically defined as a purchasing strategy to maximize value for both consumers and employers by adopting principles from microeconomics. A sponsor, whether in the private or the public sector, acting in the interests of a large number of subscribers, regulates the market to avoid attempts by insurers to suppress price competition. Through this strategy, the sponsor attempts to create price-elastic demand and reduce market risks. This type of financial management has been attractive for employers and insurers in the U.S. health sector because, while controlling prices, it offers pluralism in services and maintains individual choice for consumers, but it also approximates universal coverage.

In The Logic of Health-Care Reform (1994) the sociologist Paul Starr outlined several elements that are necessary for this strategy to achieve its objectives: There must be standard benefits that can guarantee a minimum level of coverage (such as hospitalization), thereby making comparisons in quality between plans possible; services should be accessible in principle to all customers regardless of any preexisting health condition (such as diabetes), and the premiums should not be unfairly influenced (for example, by age or gender); and the competition should force plans to provide detailed cost information to both consumers and employers.

Managed competition should be distinguished from managed care in health delivery. In managed care, networks of hospitals, physicians, and care providers offer accessible and economical care—for example, through preferred provider organizations (PPOs) that have contracted with insurers or employers for a discounted fee. However, such fee-discounting arrangements cannot in the long run monitor quality of service.

The aim of Enthoven’s scheme was in fact to ensure that customers rather than employers would make healthcare choices on the basis of cost. The difficulty facing most forms of health care is how to achieve equity in care between the chronically sick and the relatively healthy while also controlling costs. In the Enthoven scheme, one strategy to address this situation is through the creation of regional centers of medical technology to share technical costs with a range of groups.

Although managed competition as an idea has been around since the 1970s, it is generally agreed that the U.S. health-care system is failing in terms of cost control, quality, and provision of services across society. The employerbased system does not offer coverage to individuals whose employer does not offer health insurance or to those who are self-employed or who are unemployed but not poor. In the early twenty-first-century situation, there is little incentive for improving efficiency on the part of providers. In short, there is no market mechanism to create incentives for delivery systems to reduce the costs of care.

The health-care systems of all advanced societies are exposed to similar problems of price inflation, administrative inefficiencies, and mounting costs resulting from dependence on advanced medical technology, the healthcare needs of aging populations with chronic illness, and the rising expectations of customers for better services. These difficulties face societies such as the United Kingdom and Sweden, which have had, at least since the end of World War II (1939–1945), state-supported, universal health care with free provision of services at the point of delivery. In these societies, however, there has been growing privatization of health care through greater provision of private medical insurance. In the United Kingdom both Conservative and Labour governments encouraged the creation of quasi-markets inside the National Health Service (NHS) to promote price controls through competitive tendering and outsourcing for services. Despite these reforms, there are many problems with the NHS, such as significant regional inequalities in provision—the so-called postcode lottery—and difficulties in recruiting adequately trained staff. Despite claims that managed competition has been successful (e.g., in Florida and Indianapolis) in cutting costs, it is not clear that any of these reforms have successfully sustained equality in services and cost-effectiveness in delivery.


  1. Enthoven, Alain C. 1988. Theory and Practice of Managed Competition in Health Care Finance. Amsterdam: North Holland.
  2. Enthoven, Alain C. 1991. Internal Market Reform in the British NHS. Health Affairs 10 (3): 60–70.
  3. Rodwin, Victor G. 1984. The Health Planning Predicament: France, Québec, England, and the United States. Berkeley: University of California Press.
  4. Starr, Paul. 1994. The Logic of Health-Care Reform: Why and How the President’s Plan Will Work. Rev. ed. New York: Penguin.

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