WHY MANAGED CARE HAS FAILED TO CONTAIN HEALTH COSTS

Much evidence points to the fact that managed care plans (health maintenance organizations and preferred provider insurance) reduce costs and offer value for money. Yet they apparently have not helped to slow national health expenditures. One explanation is that the practices of purchasers (including government and employers), the tax laws, and other market imperfections have reduced the demand for real cost containment, depriving managed care plans of an adequate incentive to cut cost and price. These market conditions can and should be corrected; the managed competition proposal being discussed at the national level is a comprehensive plan for doing so.