Cato Journal

Cato Journal

Spring/Summer 2002


Defined Contribution: From Managed Care to Patient-Managed Care
By E. Haavi Morreim



After more than a decade of extraordinary turbulence in the financing and delivery of health care, it is sobering but probably accurate to anticipate even greater challenges in the near future. Indeed, one commentator has ventured that health care is heading for its own "perfect storm" (Miller 2001). After years of increasingly desperate attempts to centralize control over medical decisions and dollars, the next phase may take us "forward into the past" in ways that will finally reunite patients with their own health, health care, and health care dollars.

A bit of history will suggest how this is likely to play out. Lavish health care funding beginning in the mid-1960s led to decades of unrestrained spending, followed by desperate but unsuccessful attempts to contain costs. In the 1990s managed care introduced business concepts hitherto largely alien to the world of health care. The result was a much-needed taming of expenditures, but at the price of denials, delays, and inconveniences that sometimes were medically, personally, politically, and even economically counterproductive. Although health care clearly needed business discipline, many of the tools of managed care came from people who had considerable experience with businesses such as insurance, but relatively little experience with the clinical nuances of health care.

Managed care's most notorious tactics quickly faded, partly via public backlash and partly as the late 1990s economic boom required employers to lure and keep good workers with generous health care benefits alongside hefty salaries. This phase, too, was short-lived, as the most recent economic slowdown now prompts yet another reexamination of the ways in which health care is financed and delivered.

Promising changes are afoot, particularly via "defined contribution" plans that bring patients into closer contact with the costs of their care and thereby into greater control over the content of their care. This development provides an important opportunity to address important, longstanding flaws in the U.S. health care system.

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