Power of Choice

Can managed competition lower health-care costs?
Magazine Contributor
2 min read

This story appears in the November 2005 issue of Entrepreneur. Subscribe »

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."

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."

More from Entrepreneur

Are paying too much for business insurance? Do you have critical gaps in your coverage? Trust Entrepreneur to help you find out.
Get Your Quote Now

In as little as seven months, the Entrepreneur Authors program will turn your ideas and expertise into a professionally presented book.
Apply Now

Whether you are launching or growing a business, we have all the business tools you need to take your business to the next level, in one place.
Enroll Now

Latest on Entrepreneur

My Queue

There are no Videos in your queue.

Click on the Add to next to any video to save to your queue.

There are no Articles in your queue.

Click on the Add to next to any article to save to your queue.

There are no Podcasts in your queue.

Click on the Add to next to any podcast episode to save to your queue.

You're not following any authors.

Click the Follow button on any author page to keep up with the latest content from your favorite authors.