COMPETITION AND QUALITY AMONG MANAGED CARE PLANS IN THE USA

This paper examines the popular idea that competition among managed ca re plans will lead not only to lower prices, but also to improved qual ity. We explore the likelihood that competition based on quality will occur and that better quality care will result. First, we discuss key elements of competitive theory and then we attempt to apply them to ma rkets for health care coverage and care. We identify the conditions ne cessary for competition to have the desired effects and assess the ext ent to which those conditions do or can exist. We conclude that in the USA, many consumers have no choice among plans and, therefore, cannot select one based on quality. Moreover, the evidence suggests that as long as price varies among health plans, consumers who do have a choic e will tend to emphasize price, not quality, in making their selection s. We conclude with suggestions to increase the likelihood that qualit y can improve as a result of competition.