Are Fee-for-Service Costs Increasing Faster Than HMO Costs?

Published in: Medical Care, v. 23, no. 8, Aug. 1985, p. 960-966

Posted on RAND.org on December 31, 1984

by Joseph P. Newhouse, William B. Schwartz, Albert P. Williams, Christina Witsberger

It is well known that the costs of care at health maintenance organizations (HMOs) at any point in time have been lower than in the fee-for-service sector, but how costs have changed in each of these sectors has been less well-documented. The only previous study, which examined the HMO experience during the 1960s and early 1970s, found that HMO and fee-for-service costs rose at approximately the same rate. The present study, which extends this analysis to the period 1976-1981, also demonstrates that HMO costs increased at a rate not detectably different from that in the fee-for-service sector. These results are consistent with the earlier conclusions that HMOs cause a once-and-for-all reduction in cost. They also indicate that the public has been willing to pay for much of the increased costs of modern medical technology.

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