Question

discuss the individual mandate and managed competition in terms of the general model of a health care system. pay particular attention to the role 3rd party payers play in each plan

Answer 1

Managed competition refers to the strategy of purchasing where maximum value for money is obtained for employers and consumers.

In last few years, health care in the United States has started shifting in the direction of “competition,” due to rapid growth of health maintenance organizations (HMOs) and preferred provider insurance (PPI) plans, and also other forms of selective contracting.

Several conditions must be satisfied to produce a reasonable approximation to efficiency and equity for a market system in health care financing and delivery.

First of all, a health plan must be cost-effective. Those who choose one health plan that costs more than another must pay the extra cost with their own net. This principle is not yet well known. Medicare is still based largely on a fee-for-service (FFS) system, even under prospective payment. So, we can still see a large, open-ended, less cost effective sector in our health care economy.

Secondly, the provider community must be divided into competing economic units. One important point is matching resources used to the needs of the population served, including numbers and specialties of doctors. Ten independent practice associations (IPAs) or preferred provider insurance plans in the city, with practically all doctors contracting with all plans, is not competition in this sense.

Thirdly, health coverage must be universal. Competition systematically focuses on cross-subsidies such as charity and bad debt care by doctors and hospitals. Cost-conscious buyers shop for the lowest price. In this system of competition, if a hospital seeks to load extra charges onto its prices to cover uncompensated care, it will lose business to other hospitals that do not. Increasingly, hospitals find that under prospective payment and selective contracting by Medicaid, HMOs, and PPI plans, nobody is willing to pick up the tab, and financial survival comes to depend on avoiding patients who lack coverage.

Lastly, for competition to produce reasonable efficiency and equity there must be some rules for the competition, subsidies for health plan enrolments, and active management of the process to overcome major sources of market failure. The purpose is not to defend “competition” versus “regulation.” but, to clarify in principle and in practice what it would take to make competition work to produce efficient care equitably delivered.

Managed competition focuses on the use of available tools to create a structure which is cost effective and provide a choice to consumers among efficient health plans. The market in managed system is three cornered – which includes consumers, health plans and sponsors.