Managed Competition

Defining Managed Competition

Managed competition is a marketing and management strategy used to obtain maximum value for consumers and employers. It relies on competitive rules that were established through macroanalysis of interactions among consumers/employees, employers, health service providers, and public and private funding agencies.

The sponsor of a managed competition scheme develops a planned system that requires establishing rules of equity, as well as efficiency. Participating plans are selected and enrollment processes are regulated. This strives to achieve a balance between demand, cost, and risk considerations within fixed comprehensive health insurance service packages for consumers.

Managed competition offers employees a choice of several different health insurance plans or delivery systems. The employer contributes a set fixed-monetary amount established by sponsors set at or below the price of the low-cost plan. Employees then make their choice from among the plans offered that best meets their needs and pay any price differential with pretax dollars. This creates incentives for employees to make tough economic choices and introduces price competition among insurance providers.

Contextualizing Managed Competition in the Health Services Industry

In the 1970s, the American federal government developed the Medicare and Medicaid programs as limited entitlement plans intended primarily for retirees and the indigent. These systems essentially comprised government-funded social medical insurance. The more [Page 1313]affluent obtained employer-provided private insurance programs, for the most part. Both of these approaches to improving medical coverage have benefits, as well as limitations.

One advantage of the single-payer government medical insurance model lies in its ability to spread or “socialize” the risk of the occasional high-cost procedure over a relatively large contributor base. Another benefit is that the single government payer gives the consumer considerable leverage in price and service negotiations with prospective medical care providers and systems.

The single-payer social insurance health care approach does have potential deficiencies. It poses a “moral hazard” that consumers may be tempted to overuse nominally “free” medical services paid for by the government as a universal social entitlement. Scarce tax dollars could be wasted, thereby undermining the financial soundness of the social insurance fund for all. The question is this: Should health care be regarded as a public good freely available to all citizens? Or, is it a private consumer good that can most efficiently and effectively be provided by private entities responding to price mechanisms and profit incentives?

Conversely, private or free market medical insurance delivers services to those with the means to afford them. It is relatively expensive, since competing, duplicative insurance providers lose potential economies of scale in purchasing and medical administration. It can also be portrayed as restrictive and inequitable, since comparative wealth allocates the quality and quantity of medical services provided. In 2006, an estimated 45 million Americans lacked any or meaningful health coverage; yet Americans paid twice as much per capita as Canadians and the French for health service. Some private health insurers, driven by the profit motive, tend to cherry-pick healthy clients and exclude high-risk customers with preexistent conditions.

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