How Does Managed Care Do it?

Posted: 31 Jul 2000

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)

Abstract

Integrating the health services and insurance industries, as health maintenance organizations (HMOs) do, could lower expenditure by reducing either the quantity of services or unit price or both. We compare the treatment of heart disease in HMOs and traditional insurance plans using two datasets from Massachusetts. The nature of these health problems should minimize selection. HMOs have 30% to 40% lower expenditures than do traditional plans. Both actual treatments and health outcomes differ little; virtually all the difference in spending comes from lower unit prices. Managed care may yield substantial increases in measured productivity relative to traditional insurance.

JEL Classification: I11, I12

Suggested Citation

Cutler, David M. and McClellan, Mark B. and Newhouse, Joseph P., How Does Managed Care Do it?. RAND Journal of Economics, Vol. 31, No. 3, Autumn 2000. Available at SSRN: https://ssrn.com/abstract=235288

David M. Cutler (Contact Author)

Harvard University - Department of Economics ( email )

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National Bureau of Economic Research (NBER) ( email )

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Harvard University - Harvard Kennedy School (HKS) ( email )

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Mark B. McClellan

Brookings Institution ( email )

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Council of Economic Advisors ( email )

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National Bureau of Economic Research (NBER) ( email )

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Joseph P. Newhouse

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

Department of Health Care Policy
Boston, MA 02115
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States

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