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This Congressional Budget Office (CBO) memorandum updates and revises an earlier CBO report--a March 1994 memorandum titled "Effects of Managed Care: An Update." It presents CBO's current assessment of the effects of health maintenance organizations based on an analysis of the 1992 National Health Interview Survey. In keeping with CBO's mandate to provide impartial analysis, the report makes no recommendations.

Sandra Christensen of CBO's Health and Human Resources Division wrote the memorandum under the direction of Nancy Gordon and Linda Bilheimer. Roger Feldman, Marsha Gold, Scott Harrison, Jeffrey Lemieux, Murray Ross, John Sheils, David Stapleton, and Christina Witsberger offered helpful suggestions.

Sherwood Kohn edited the manuscript and Christian Spoor provided editorial assistance. Sharon Corbin-Jallow prepared the final version of the manuscript. Questions about the analysis may be addressed to the author.
 

SUMMARY

INTRODUCTION

EFFECTS OF HMOs AND OTHER MANAGED CARE ARRANGEMENTS

• Average Effects of HMOs on Use of Services
• Any-Willing-Provider and Point-of-Service Requirements
• Revised Estimates of Effects on Total Spending
• Quality of Care and Enrollee Satisfaction

EFFECTS OF MANAGED COMPETITION

APPENDIX: THE EFFECTS OF MANAGED CARE ON USE OF SERVICES: EVIDENCE FROM NATIONAL SURVEY DATA
 

SUMMARY

New evidence from the 1992 National Health Interview Survey indicates that health maintenance organizations (HMOs) reduce use of health care services by an average of about 8 percent, compared with services that similar patients would be expected to use in a typical fee-for-service indemnity plan. Most of this effect is generated by group- or staff-model HMOs, which reduce use of services by nearly 20 percent. Although independent practice associations (IPAs) having certain characteristics could be as effective as group/staff HMOs, many IPAs do not have these characteristics. Further, IPAs would be unable to develop two of the necessary characteristics in states that have "any-willing-provider" laws, which require network plans to accept all providers who are willing to meet the plans' terms.

The effects on use of services presented in this memorandum, however, do not necessarily imply similar effects on health care spending if enrollment increased in more tightly managed plans. Spending changes would mirror changes in use only if it was reasonable to assume that there would be no alteration in payment rates for providers or in administrative costs, at least on average. Those assumptions would not be reasonable in many instances. For example, if enrollment in HMOs or other managed plans increased, average payment rates for providers might fall because managed plans are more likely than unmanaged plans to negotiate for and win price discounts from providers. It is also likely that administrative costs would increase.

This document is available in its entirety in PDF.