August 11, 2003
Excerpt from a letter from Stephen M. Davidson, Professor, Health Care Management, Boston University school of Management, responding to Alain Enthoven’s previous article on multiple-employer exchanges:
Alain Enthoven believes that the employment-based system has failed to control health care costs because so many employers offer their employees coverage from only a single source instead of from multiple sources that would compete for the employees’ business. His solution is to create multiple-employer exchanges,” which would offer members’ employees choices among plans.
I am not commenting on his diagnosis. However, the success of his prescription depends on the probability that it will actually reduce the cost of care. Since I believe the chances of that are slim for several reasons, in my view, Enthoven’s solutions will not work…
Managed care plans can contain costs for a time by paying lower salaries or fees, buying supplies in bulk, or reducing administrative staff. But the key to keeping them down is improving the system’s efficiency by changing the processes of care. As noted above, that is a complicated, costly undertaking that health insurance plans are unlikely to attempt unless the incentives are a lot stronger and more reliable than those that would result from Enthoven’s exchanges.
Excerpt from Alain Enthoven’s response to Davidson’s letter:
Davidson leaves me wondering what alternative he would suggest to motivate process improvement. Would he suggest a single payer? A single payer could offer important advantages, such as universal coverage and government monopsony power to counterbalance provider monopolies, but it seems unlikely that it could motivate process improvement. Yet if U.S. employers don’t make a radical change toward managed competition pretty soon, a single payer will become inevitable, if it isn’t already.