Paying for Children's Medical Care: Is the Medicare Experience Helpful?

In the debate over health care reform, analysts disagree as to whether increased competition among insurance plans or increased government regulation will be more effective in controlling health care costs. This disagreement often pits plans in which the emphasis is on managing care to control overall spending against plans in which the emphasis is on limiting the fees that can be charged for specific health services. Although these two competing approaches each have proponents who argue vehemently that only one of them can be effective in restraining health care spending, health care reform may actually depend a bit on both. For example, one strategy for reform may be to allow managed care plans to compete against traditional insurance plans that pay providers on a "piece rate" basis subject to predetermined limits. Another strategy may be to rely on rate regulation to control costs while phasing in a system that encourages managed care. While the debate continues, it is appropriate to examine regulatory efforts to control the price (and sometimes at least part of the volume) of health care services.