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Managed Care and the Growth of Medical Expenditures

In: Frontiers in Health Policy Research, Volume 1

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  • David M. Cutler
  • Louise Sheiner

Abstract

We use data across states to examine the relation between HMO enrollment and medical spending. We find that increased managed care enrollment significantly reduces hospital cost growth. While some of this effect is offset by increased spending on physicians, we generally find a significant reduction in total spending as well. In analyzing the sources of hospital cost reductions, we find preliminary evidence that managed care has reduced the diffusion of medical technologies. States with high managed care enrollment were technology leaders in the early 1980s; by the early 1990s those states were only average in their acquisition of new technologies. This finding suggests managed care may have a significant effect on the long-run growth of medical spending.
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Suggested Citation

  • David M. Cutler & Louise Sheiner, 1998. "Managed Care and the Growth of Medical Expenditures," NBER Chapters, in: Frontiers in Health Policy Research, Volume 1, pages 77-116, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberch:9824
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    References listed on IDEAS

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    1. Wholey, Douglas & Feldman, Roger & Christianson, Jon B., 1995. "The effect of market structure on HMO premiums," Journal of Health Economics, Elsevier, vol. 14(1), pages 81-105, May.
    2. Melnick, G.A. & Zwanziger, J., 1995. "State health care expenditures under competition and regulation, 1980 through 1991," American Journal of Public Health, American Public Health Association, vol. 85(10), pages 1391-1396.
    3. Baker, Laurence C., 1997. "The effect of HMOs on fee-for-service health care expenditures: Evidence from Medicare," Journal of Health Economics, Elsevier, vol. 16(4), pages 453-481, August.
    4. David M. Cutler & Mark McClellan, 1996. "The Determinants of Technological Change in Heart Attack Treatment," NBER Working Papers 5751, National Bureau of Economic Research, Inc.
    5. Alan B. Krueger & Helen Levy, 1996. "Accounting for the Slowdown in Employer Health Care Costs," Working Papers 749, Princeton University, Department of Economics, Industrial Relations Section..
    6. Joseph P. Newhouse, 1992. "Medical Care Costs: How Much Welfare Loss?," Journal of Economic Perspectives, American Economic Association, vol. 6(3), pages 3-21, Summer.
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