Using Managed Care Tools in Traditional Medicare— Should We? Could We?

Since the early 1990s, policy analysts seeking important opportunities for reform in the Medicare program have looked at the experience of private markets and managed care in the private sector. Managed care organizations (“MCOs”), in general, and health maintenance organizations (“HMOs”), in particular, seem to have hit the wall in recent years in their ability to contain costs. They have experienced a public backlash against many of their policies and procedures, resulting in marketplace, legislative, and legal reactions that have altered their operations. Nevertheless, many policy analysts continue to look to managed care and competition among private health plans as the bases for structural reform of Medicare. Proponents of market forces in health care often advocate both managed care and managed competition, but, although related, the concepts are quite different. For purposes of this discussion, we apply the term “managed care” to supply-side interventions meant to affect directly the efficiency and quality of health services delivery. In contrast, “managed competition” attempts to alter individuals’ demand for care among competing private insurers, thereby affecting provider behavior only indirectly.