Regulatory and Nonregulatory Strategies for Controlling Health Care Costs

Abstract

To date, three generic types of policy responses to the problem of rising health expenditures have been proposed. One is to increase greatly the share of medical costs that is paid by the patient so that consumers will have much more incentive to economize on medical services. A second is to leave intact the incentives for increasing expenditures in the fee-for-service, cost reimbursement, third-party intermediary system, but to impose economic and technical regulation on providers in an attempt to prevent the incentives from producing their natural effect. The third is to restructure the delivery and payments system in a manner that alters the basic financial incentives facing providers so that they find it in their interest to provide good quality but cost-effective care. The main thesis of this paper is that spending on health services cannot be effectively controlled in the present political context without the use of a policy of the third type.