NCPA - National Center for Policy Analysis

Managed Care Savings

June 1, 1995

Managed care attempts to control health care expenditures by reducing the use of services on the assumption that some health services provided to consumers are unnecessary or inappropriate.

It is a matter of contention whether or not switching to managed care has reduced overall spending; if so, by how much; and whether managed care can reduce the rate of growth of expenditures nationwide.

A review of nine major studies on the impact of managed care on health spending by the Center for Health Policy Research of the American Medical Association found estimates of annual savings from managed care ranging from 2.3 percent to 9.6 percent. Reasons for the wide range of estimates include the varying assumptions on which the studies were based -- some of which were guesses.

For example, between 1994 and 1995 the Congressional Budget Office doubled its estimate of how much national health expenditures might be reduced if all health care were delivered by Health Maintenance Organizations (HMOs) from 3.9 percent to 7.8 percent . According to the AMA, the reason for the doubling was that in correcting for various biases and flaws in the data, the CBO introduced new biases into its calculations.

Among the conclusions of the AMA study:

  • The success of HMOs in reducing health expenditures relative to traditional fee-for-service is due to reductions in hospital admissions and lengths of stay, but the effect on national health care spending is unclear.
  • There is no evidence that any form of managed care has the ability to reduce the growth rate of health expenditures.
  • Year-to-year comparisons of premium increases, which are cited as evidence of slower spending under managed care, are meaningless when it comes to determining the effect of managed care on spending growth.
  • Data need to be collected over a period long enough for researchers to account for all the variables that affect spending.
  • Assuming everyone was enrolled in managed care organizations, the best estimate of the additional one-time reduction in national health care spending that might be achieved is 3.9 percent.

Overall, the study concludes that the literature on managed care savings is "replete with poor analyses."

Source: David W. Emmons, "The Impact of Managed Care on National Health Spending: A Critical Review of the Literature," Discussion Paper 95-2, June 1995, Center for Health Policy Research, American Medical Association, 515 North State Street, Chicago, IL 60610.


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