Competition and quality among managed care plans in the USA

This paper examines the popular idea that competition among managed care plans will lead not only to lower prices, but also to improved quality. 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 markets for health care coverage and care. We identify the conditions necessary for competition to have the desired effects and assess the extent 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 choice will tend to emphasize price, not quality, in making their selections. We conclude with suggestions to increase the likelihood that quality can improve as a result of competition.