Power of Choice
Can managed competition lower health-care costs?
Looking for a way to give employees health-care options while
trimming your company's costs? In a growing number of states,
small companies can now opt for greater flexibility and lower-cost
health benefits through "managed competition."
How does it work? Essentially, employers choose--and pay for--a
set of streamlined plans with fixed employer and employee
contribution amounts. Employees choose from among these plans;
those who want greater coverage may also select add-on options
offered by multiple providers.
Ultimately, empowering employees to allocate their own
heath-care dollars also encourages competition among health-care
providers, explains Alain Enthoven, professor of public and private
management at Stanford University. "Managed competition lets
the more efficient groups market their services by charging lower
prices for care."
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Traditionally, managed competition has been employed primarily
by large-scale state and federal employers. But two
"exchanges"--California-Choice in California and BENU in
Oregon, Washington and the Washington, DC, area--are making managed
competition available to smaller employers. Small companies can
also band together to develop managed competition in a given
market.
Momentum around the concept may be slow to build, however.
Insurance companies accustomed to contracting with an
employer's entire employee base are likely to resist the shift.
Managed competition can also boost plan complexity--and
administrative costs for employers, notes Enthoven.
Yet the payoff can be well worth overcoming hurdles along the
way. Says Enthoven, "Over time, there's a lot of money to
be saved."