State health care expenditures under competition and regulation, 1980 through 1991

by Glenn Melnick, Jack Zwanziger

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This paper examines health expenditure growth under two alternative policy approaches: competition-based managed care and state government rate regulation. Data are presented on cumulative growth in real per capita health expenditures between 1980 and 1991 so as to compare California, a state with a pro-competitive policy, with the U.S. average and with four states with established regulation programs. Real per capita expenditures for hospital services in the United States grew 54% between 1980 and 1991, while in California the growth was half the national rate, or 27%. Real per capita expenditures for physician services and drug expenditures in the United States grew by 82% and 65%, respectively, while in California these expenditures increased only 58% and 41%, respectively. California's growth rate was below that of all four regulatory states for all measures of health care cost inflation. On the basis of these findings, a properly structured competitive approach could play a significant role in controlling health expenditures in the United States.

Originally published in: American Journal of Public Health, October 1995, v. 85, no. 10, October 1995, pp. 1391-1396.

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