Prices and Productivity in Managed Care Insurance

52 Pages Posted: 8 Sep 1998 Last revised: 4 Apr 2015

See all articles by David M. Cutler

David M. Cutler

Harvard University - Department of Economics; National Bureau of Economic Research (NBER); Harvard University - Harvard Kennedy School (HKS)

Mark B. McClellan

Brookings Institution; Council of Economic Advisors; National Bureau of Economic Research (NBER)

Joseph P. Newhouse

Harvard Medical School; Harvard Kennedy School (HKS); National Bureau of Economic Research (NBER); Harvard University - Harvard Kennedy School (HKS)

Date Written: August 1998

Abstract

Integrating the health services and insurance industries (HMOs) could lower expenditure by reducing either the quantity of services or unit price. We compare the treatment of heart attacks and newly diagnosed chest pain in HMOs and traditional plans in two data sets. The nature of these health problems should minimize selection, and OLS and instrumental-variable estimates yield consistent results. HMOs have 30 to 40 percent lower expenditures than traditional indemnity plans. Actual treatments and health outcomes differ little; virtually all the difference in spending comes from lower unit prices. Managed care may yield substantial productivity improvements relative to traditional insurance.

Suggested Citation

Cutler, David M. and McClellan, Mark B. and Newhouse, Joseph P., Prices and Productivity in Managed Care Insurance (August 1998). NBER Working Paper No. w6677. Available at SSRN: https://ssrn.com/abstract=123229

David M. Cutler (Contact Author)

Harvard University - Department of Economics ( email )

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Mark B. McClellan

Brookings Institution ( email )

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Joseph P. Newhouse

Harvard Medical School; Harvard Kennedy School (HKS) ( email )

Department of Health Care Policy
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National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
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Harvard University - Harvard Kennedy School (HKS) ( email )

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United States

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