How does managed care do it?

Integrating the health services and insurance industries, as health mainten ance organizations (HMOs) do, could lower expenditure by reducing either th e quantity of services or unit price or both. We compare the treatment of h eart disease in HMOs and traditional insurance plans using two datasets fro m Massachusetts. The nature of these health problems should minimize select ion. HMOs have 30% to 40% lower expenditures than traditional plans. Both a ctual treatments and health outcomes differ little, virtually all the diffe rence in spending comes from lower unit prices. Managed care may yield subs tantial increases in measured productivity relative to traditional insuranc e.