A Primer on Competitive Strategies for Containing Health Care Costs

HRD-82-92: Published: Sep 24, 1982. Publicly Released: Sep 24, 1982.

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Pursuant to a congressional request, GAO analyzed the procompetition strategies for health care cost containment, focusing on a description of their major features, their underlying assumptions, and the bases upon which their impact on health care costs have been estimated.

Two major procompetitive approaches, cost-sharing and the alternative delivery system, were described. The cost-sharing approach relies on increased consumer sharing of health care costs as a means of encouraging consumers to use fewer health care services and to shop for the lowest prices. The alternative delivery system relies on increased development of and participation in prepaid health care plans known as health maintenance organizations. Both approaches offer potential for reducing consumers' use of health services and reducing inflation in health care costs, but the effects of greater cost sharing on the long-term health of consumers or their long-term expenditures are uncertain. The prepaid group practice health maintenance organization has proven effective in reducing enrollee costs. Enrollment capacity limitations and obstacles to establishing new plans will limit enrollment in prepaid group practices. Other types of alternative delivery systems are not faced with these obstacles, but neither have they yet demonstrated the kind of cost savings attributable to the prepaid group practice health maintenance organizations. Other issues involved in the implementation and effects of either competition approach include: (1) the potential for inadequate or costly health insurance coverage for the aged and persons in low income brackets; (2) the ability of consumers to obtain and understand the information necessary for making informed choices; (3) the impact on administrative costs; and (4) the impact on hospitals.

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