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Recently, the Department of Defense replaced fee-for-service insurance plan for military health care beneficiaries with an HMO/PPO hybrid. Using survey and claims data, the authors compare changes in costs over two years at sites that implemented this initiative (CRI) with changes at matched control sites. The results indicate that CRI substantially raised per beneficiary government costs for providing benefits (as compared to predicted costs in the absence of CRI). The authors attribute this difference to the higher overhead of managed care and the increased expenditures by HMO participants.

Originally published in: Journal of Health Economics, v. 14, 1995, pp. 401-418.

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