Competition , Quality of Care , and the Role of the Consumer

Th e r e i s l i t t l e e v i d e n c e o f a n y r e l a t i o n , either positive or negative, between competition and the quality of medical care, and the existing data amount to even less than an examination of the literature on the topic would suggest. For want of data, analysts often use HMO market shares or, more recently, increased “managed care” shares as a proxy for market competition. These variables are not the same as competition, however; they may also not even be correlated with each other. Clearly, the emergence of HMOs has altered provider behavior and has led to a dramatically different health insurance market, but HMOs are neither a necessary nor a sufficient condition for market competition among providers. Although many had expected that laws encouraging the growth of HMOs would, in fact, lead to increased market competition and, with it, cost containment, whether this has occurred is very difficult to prove (Miller and Luft 1997). A factor more directly linked to market competition is the degree of sensitivity to price, which begins in the insurance market and reflects, to a degree, the role of the employer. For example, if employers provided employees with a choice of plans (not