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Hmos and Health Externalities: A Local Public Good Perspective

Author

Listed:
  • Allen C. Goodman

    (Wayne State University)

  • Miron Stano

    (Oakland University)

Abstract

This article introduces a health maintenance organization (HMO) model that characterizes HMO decisions on enrollment, utilization levels, and quality. Facing global budgets dependent on revenue raising capacity, HMOs must determine standards of care and the corresponding premiums to cover costs. Revenues are allocated among HMO providers by gatekeepers who are often subject to strict utilization controls. The authors' model identifies various uncompensated health and pecuniary externalities that may result from patient disenrollments, thereby affecting treatment costs. As a result of these externalities, HMOs may provide less than socially efficient levels of care, and they may also enroll less than socially efficient numbers of members. The model also predicts that HMOs may promote socially cost-inefficient treatment options for conditions in which multiple options are available.

Suggested Citation

  • Allen C. Goodman & Miron Stano, 2000. "Hmos and Health Externalities: A Local Public Good Perspective," Public Finance Review, , vol. 28(3), pages 247-269, May.
    • Handle: RePEc:sae:pubfin:v:28:y:2000:i:3:p:247-269
    DOI: 10.1177/109114210002800306
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    References listed on IDEAS

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    Cited by:

    1. John A. Rizzo, 2005. "Are HMOs bad for health maintenance?," Health Economics, John Wiley & Sons, Ltd., vol. 14(11), pages 1117-1131, November.
    2. Richard Cebula, 2006. "A Further Analysis of Determinants of Health Insurance Coverage," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 12(3), pages 382-389, August.
    3. repec:kap:iaecre:v:12:y:2006:i:3:p:382-389 is not listed on IDEAS
    4. Cebula, Richard & Nair-Reichert, Usha & Taylor, Kyle, 2009. "Does a Lack of Health Insurance Elicit an Increase in the Rate of Voluntary Military Enlistment in the U.S.? The "Military Health Care Magnet Hypothesis," 1974-2007," MPRA Paper 56719, University Library of Munich, Germany.

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