This Week, Industry Snapshot Looks at
Managed Care

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Humana Inc.

Oxford Health Plans,Inc.

PacifiCare Health Systems, Inc.

United HealthCare Corporation

WellPoint Health Networks, Inc.

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This Week's Industry Snapshot

America's third-party payer system is the primary culprit in the explosive growth in consumption of medical services over the last thirty years. Yet, it is the foundation upon which healthcare in America is built, and is quite beyond the reach of any traditional notion of "reform." Contrary to the very real dynamics of the system, healthcare is popularly viewed as a consumer good. That is, the product "healthcare" is expected to be of high quality, and the expectation of most consumers is that the market will deliver this product at a fair price. The element that throws this scheme into disarray, simultaneously upsetting traditional market analysis, is the fact that most Americans never pay full price for these "goods."

In addition, the entire assumption of the market as a level playing field does not hold water either. Whether covered under indemnity plans or so called "managed care" plans, most privately insured Americans never pay more than 20% of their healthcare bills. The payer is never present when the other two actors -- the provider and the patient -- come together and start spending health dollars. As long-time healthcare analyst and economist Alain Enthoven notes, "When you are insured, whether by private companies or by the government, you do not have a serious, personal reason to care about healthcare cost increases. You're buying it with somebody else's money. Your doctor doesn't have any reason to care about the cost increases either, because insurance pays." The bottom line is that four out of five Americans, both rich and poor, buy their healthcare with someone else's money.

Attempting to treat healthcare like any other consumer good has obvious limitations from an analytical perspective and highlights the morass that healthcare has become. Healthcare is oftentimes a contradictory, complex jumble of intervention, expectations, and obligations. If healthcare were a movie trilogy, the first installment would be "Runaway Cost Wars." We are presently in the midst of viewing the sequel, "The Payers Strike Back." The "evil empire" with its managed care denizens have mounted a strong offensive, and are roundly despised for practices that some feel lead to decreased quality of care. However, like it or not, managed care is the key element in the evolution of healthcare toward a market-driven industry, and will be instrumental in penning the final "script" in the trilogy.

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