Health Affairs, 24, no. 6 (2005): 1501-1511 doi: 10.1377/hlthaff.24.6.1501 © 2005 by Project HOPE	New Online   Senate Health Reform Bill   Rewarding Providers   Public Option Policy Brief   Health Reform & Abortion   Delivery System Reform

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Consumerism

Coordinated Agency Versus Autonomous Consumers In Health Services Markets

Abstract

 
Despite widespread acceptance of the competitive market model in the U.S. health care system, debate continues regarding the optimal form of competition and the patient-professional relationship. The managed care model envisions organizations that act as the consumer’s agent, addressing the challenges that consumers face in the market for health care services. The consumer-directed health plan model envisions autonomous, well-informed, price-conscious consumers shopping among providers unconstrained by organizational affiliations. Although advocates of these two approaches stress their philosophical differences, the realities of the market suggest that both models, as well as hybrids, might be valued by consumers.

Despite widespread acceptance of the competitive market model, however, the debate continues regarding the optimal form of competition. In a recent article in the Harvard Business Review, Michael Porter and Elizabeth Teisberg blamed "the wrong kinds of competition" for "making a mess of the American health care system" but remained hopeful that "the right kinds of competition can straighten it out."² According to them, the problem is competition at the wrong level—for example, among "health plans, networks, and hospital groups." The right kind of competition is competition over the "prevention, diagnosis and treatment of specific diseases or combinations of conditions." If one set of providers offers superior care for acute myocardial infarction, then they should be rewarded with more business of that type, but there should be no presumption that other providers in the same organization who read mammograms also are excellent.

Porter and Teisberg’s proposal is a clear rejection of the managed care model, in which a health plan serves as the consumer’s agent to help address consumers’ problems in the market for health care. Instead, their proposal finds common ground with advocates of high-deductible, consumer-driven health plans. In the consumer-driven model, managed care plans are replaced by autonomous, well-informed, price-conscious consumers shopping among task-specific, disease-specific providers, regardless of the providers’ affiliation with larger organizations.

The purpose of this paper is to identify the problems that arise in the market for health care services and examine the extent to which managed care firms and consumer-directed plans can address them. Although advocates of these two approaches stress their philosophical differences, the realities of the market suggest that both models, as well as hybrids, might be valued by consumers.

The Problem: Market Failure

Top The Problem: Market Failure Managed Care And Coordinated... Consumer-Directed Plans And... Challenges And Opportunities For... Concluding Comments NOTES

 
At the core of all health care reform proposals lies an assessment of the transaction that provides the rationale for the entire health care system: the interaction between the consumer (when the consumer becomes the patient) and health care professionals. When economists assess transactions between buyers and sellers, they generally find persuasive the powerful theoretical results generated by the model of perfect competition and the observed benefits to consumers of competition among sellers. Thus, economic analyses of ways in which transactions between buyers and sellers can be improved tend to focus on sources of, and remedies for, "market failure."

Market failure can arise in several different ways. In some cases, characteristics of the good or service make market failure inevitable. For example, it is difficult for the market to determine the right price of a service that people cannot be prevented from consuming. National defense is the textbook example. Other services have unusual characteristics, such as right-of-way problems that limit the number of firms that can enter the market. Problems also arise when each unit of the service costs less to produce than the previous unit (decreasing marginal costs). In that case, a single firm can become a monopolist, taking over the entire industry. The production and distribution of electrical power offers a good example of these latter problems. All of these sources of market failure are inherent in the product, and some are intractable. In the case of intractable market failure, economic management of the industry often is turned over to the government, and the industry is regulated as a public utility. I have argued elsewhere that there are no intractable sources of market failure in the market for either health insurance or health care services.

Other types of market failure, such as poor information, restricted entry and exit from markets, and distorted prices, might be challenging but are not intractable. In fact, market failure can be the result of deliberate government action. The deleterious effects of one type of market failure might be addressed by imposing another type. For example, allowing only licensed physicians to practice medicine introduces market failure in the form of restricted market entry in an attempt to address the problem of poor consumer information about physician quality. Market failure also can be the natural by-product of other consumption decisions. The distortion in the price of health care services caused by health insurance is a natural by-product of purchasing increased protection against financial risk.³ Correcting sources of market failure such as poor consumer information can be expensive, and so economists often ask whether we have achieved the optimal mix and level of "failure"—that is, have we found the optimal trade-off between different types of market failure or the cost-effective level of correction.

When the trade-offs are not optimal for a sizable number of consumers, public pressure can result in reevaluation of regulatory constraints on markets or the introduction of new products that offer consumers a different set of trade-offs. Managed care and consumer-directed plans are two such products. They are based on different assessments of market failure and offer consumers different trade-offs.

Managed Care And Coordinated Agency

Top The Problem: Market Failure Managed Care And Coordinated... Consumer-Directed Plans And... Challenges And Opportunities For... Concluding Comments NOTES

 
Although managed care is not a new concept, widespread enrollment of the U.S. population in health care organizations that actively intervene in the patient-professional relationship dates from the early 1980s. Managed care’s popularity was based on its ability to address several sources of market failure that consumers face in the market for health care services: poor information, distorted prices, and restricted entry into health care labor markets.

1. Poor consumer information: Consumers have difficulty obtaining information about the price and quality of health care providers and services. Some information difficulties arise from "tied" consumption. Tied consumption means that the purchase of a service from one provider is linked economically to consumption of services from other providers (such as physicians in the same group practice). Managed care firms can collect and analyze data on provider price and quality, and can conduct studies of the effectiveness of medical and surgical treatments. They can build that information into the design of provider networks or simply turn the information over to consumers.
   
2. Distorted prices (prices that do not reflect the provider’s cost of providing services): The difficulty of obtaining reliable information on the price and quality of services and the disincentives for price shopping inherent in insurance allow providers a degree of monopoly pricing power and create a role for managed care plans to generate contract-based price competition in the provider market.
   
3. Restricted entry into health care labor markets: Local professional norms or the reimbursement practices of traditional insurers might make it difficult for consumers to substitute one type of health care professional for another. Managed care organizations, particularly those that that hire their own medical personnel, can make such substitutions up to the limits allowed by law.
   

Managed care plans actually claim to perform these tasks.⁴ If managed care firms were successful at this, we could say that they were acting as the consumer’s agent, addressing many different forms of market failure in a variety of transactions. The use of a single organization to act as the consumer’s agent in a variety of transactions is an example of coordinated agency.

How has managed care actually performed? Managed care often is credited with relatively low health insurance premiums during the mid-1990s. The lowest rate of increase in health care premiums in the past twenty years (0.8 percent in 1996) coincided with the greatest enrollment in health maintenance organizations (HMOs), as opposed to preferred provider organizations (PPOs), point-of-service (POS) plans, and fee-for-service (FFS) plans.⁵ Comprehensive reviews of the literature by Robert Miller and Hal Luft found that in general, quality of care was comparable in managed care plans and traditional FFS plans.⁶ Ken Thorpe and colleagues found that a plurality of low-income Medicare beneficiaries (incomes between $10,000 and $20,000) were enrolled in Medicare HMOs (as opposed to basic FFS Medicare or FFS Medicare with a supplementary policy).⁷ Managed care made outpatient prescription drug coverage an affordable option for low-income Medicare beneficiaries in some market areas for two decades before it was offered as part of FFS Medicare under the Medicare Prescription Drug, Improvement, and Modernization Act (MMA) in December 2003.

Despite managed care’s accomplishments, it suffered a severe public relations setback during the late 1990s. Why? Randall Bovbjerg and Bob Miller note that there was no increase in malpractice claims associated with increased managed care enrollment during the 1990s.⁸ Indeed, if poor quality drove consumer discontent, hospitals would have been the first to feel the effects, yet there has been no "medical error backlash" against hospitals that could rival the managed care backlash in intensity or the volume of media anecdotes.⁹

Walter Zelman and Bob Berenson suggest that an important contributor to the managed care backlash was the existence of a system (for example, an HMO) that took responsibility for, and could be held responsible for, the financing and delivery of patient care—something that never existed in traditional FFS medicine.¹⁰ The fact that the culpable entity was a "big corporation," and often a for-profit corporation at that, made health plans an enticing target for the political left.¹¹ But the "large, for-profit corporation" explanation also is incomplete, because many hospitals are part of for-profit chains that are larger than many HMOs. Also, large physician group practices that presumably make a profit have been immune to the "for-profit" critique.

Mark Pauly has suggested that "unmanaged" care simply is a luxury good that we purchase when our incomes allow it.¹² One theory that is particularly relevant for this analysis is Pauly and Sean Nicholson’s suggestion that the managed care backlash resulted from an untenable mix of high- and low-risk enrollees in the same plan.¹³ The initial enrollment of low risks in managed care plans increased premiums in non–managed care plans to the point that higher risks were willing to enroll in managed care plans. The mix of low and high risks in managed care plans left the low risks unhappy with increasing premiums and the high risks unhappy with the management of care.

Is managed care a dinosaur that is dying from rampant dissatisfaction, a product that we turn to only when unmanaged care premiums outstrip our incomes, or an example of a complex coordinated agency model that still is searching for its optimal job description? Can other "institutional arrangements" do a better job of identifying and then addressing the problems that consumers face in the market for health care services? The next section examines an aggressively promoted alternative: the consumer-directed health plan.

Consumer-Directed Plans And Autonomous Consumers

Top The Problem: Market Failure Managed Care And Coordinated... Consumer-Directed Plans And... Challenges And Opportunities For... Concluding Comments NOTES

 
According to Regina Herzlinger, "consumer-driven health care is fundamentally about empowering health care consumers—all of us—with control, choice and information."¹⁴ She adds that "consumer-driven health care is a revolution—a radical turn away from the technocratic, top-down policies that just say no to providers and consumers both in the United States and abroad."

Like Porter and Teisberg, advocates for consumer-driven health care believe that the organizational structure in the health care industry places inefficient barriers between consumers and the best available care for their specific medical problems.¹⁵ They question the consumer’s need for any type of coordinated agency and instead envision a world in which autonomous, well-informed, price-conscious consumers choose among competing providers on the basis of quality and cost. The providers might be organized into groups, but ideally, the groups would be formed primarily as care systems that offer treatment of specific diseases.

Rather than focusing on poor information, restricted market entry, or price distortions attributable to monopoly pricing power, consumer-directed plans focus on the price distortion resulting from insurance. Health insurance that reduces the out-of-pocket price of care results in consumers’ demanding more care than they would in the absence of insurance. Economists refer to this increased demand as "moral hazard." When the additional services are worth less to consumers than their actual cost, economists refer to the moral hazard as "inefficient."

Consumer-directed plans attempt to reduce inefficient moral hazard by installing a large deductible that requires enrollees to spend a substantial amount of their own money before the insurance policy begins to pay. Although high-deductible plans are common in the individual health insurance market, they have not been widespread in the policies offered to employees of large firms.

Consumer-directed plans’ ability to address moral hazard can be affected by the structure of the accompanying personal care account (PCA), often funded by an employer contribution. For example, the deductible might be $4,000 per year, and the employer might set up the PCA with a contribution of $2,000 per year. Because unused funds in the PCA can be rolled over to the next year without a penalty, a relatively healthy employee soon could have the entire deductible covered by the PCA.

Interestingly, the consumer-directed plan’s focus on moral hazard comes at a time when the degree of inefficient moral hazard is being questioned. John Nyman has suggested that the level of inefficient moral hazard might have been overstated because previous studies have failed to account for some of the benefits of more complete insurance, including the ability to purchase otherwise unaffordable health care services.¹⁶

Are consumers, in large numbers, likely to find consumer-directed plans attractive? High deductibles per se, or even when accompanied by lower premiums, are unlikely to appeal to consumers. The reason is that the variance of health care spending increases with the mean, and if the mean and variance of expected spending continue to rise faster than incomes, the benefits from transferring risk from the consumer to the insurer will rise as well. Thus, one would expect demand for high-deductible plans to fall when health care costs increase faster than incomes, unless other factors are at work.

Another factor that might be at work is risk selection. Economic analysis of health insurance markets generally is predicated on a model in which low-risk consumers would like to purchase their health insurance at actuarially fair premiums, instead of subsidizing the expenditures of high-risk consumers. The inability of low-risk consumers to find a way to segregate themselves from high risks was one of the primary risk-pooling problems identified in the early health economics literature.¹⁷ In its early years, managed care might have been a way for low risks to segregate themselves.¹⁸ However, Pauly and Nicholson argue that failure to maintain the separation of high and low risks over time contributed to the managed care backlash.¹⁹ Could low-risk consumers in today’s market use high-deductible consumer-directed plans to segregate themselves from high risks, or will such plans face the same fate as managed care?

Two recent studies come to different conclusions regarding risk selection into CDHPs. Stephen Parente and colleagues found that the consumer-directed plan in their study did not attract disproportionately young or healthy enrollees, but instead attracted the wealthy and those who valued broad availability of providers.²⁰ Laura Tollen and colleagues found that prior claims and utilization data were 50–60 percent lower for subsequent consumer-directed plan enrollees relative to enrollees in more traditional HMOs and PPOs.²¹

Another challenge faced by consumer-directed plans is the high level of consumer information about specific providers and treatments they require. The Internet already has made a great deal of information about alternative medical treatments available to the consumer. Information about the quality of individual health care providers still is in its early stages, but some innovative models are under development, including provider-tiering models and organizations such as HealthFront.²²

Consumer-directed health plan advocates believe that consumers should be able to pick the insurance coverage they like best, but an important question is, "How often?" If consumers can change insurance coverage as easily as they can change mutual funds, as Herzlinger envisions, the market for insurance could deteriorate into a market for services, and true insurance could vanish.²³

Another related concept that has face validity but challenges in the details is Porter and Teisberg’s recommendation that provider groups be organized around the treatment of specific medical conditions.²⁴ Certainly, there is no reason to assume that providers who are good at treating one type of illness will be good at treating another type. But if many medical conditions, such as diabetes, are associated with multiple comorbidities, how far can specialization be taken? Will a group of physicians that is competent to treat diabetes and all of its comorbidities look very different from today’s multispecialty group practice?

A final conceptual challenge for consumer-directed plans is that the notion of autonomous consumers is somewhat at odds with the reality of insurance markets. Insurance must be bought in conjunction with other consumers (one person cannot be a risk pool), and the characteristics of the other consumers are important. The necessity of purchasing insurance cooperatively is not itself a source of market failure, but it frequently is a source of unhappiness, as reflected in Pauly and Nicholson’s theory regarding the managed care backlash.²⁵ It probably is more accurate to refer to consumers of insurance as quasi-autonomous.

Challenges And Opportunities For Both Managed Care And Consumer-Directed Plans

Top The Problem: Market Failure Managed Care And Coordinated... Consumer-Directed Plans And... Challenges And Opportunities For... Concluding Comments NOTES

 
Some of the challenges facing the market for health insurance and health care services are common to both traditional managed care and consumer-directed plans. The first common problem is poor consumer information. Most of the data on the efficacy of treatments or provider-specific quality of care are statistical in nature. Some organizational entity must collect the information required to compute statistical measures, in an environment of increasingly private data.

A second problem is creating an environment in which consumers have the ability and incentive to use the information. How serious a barrier is "tied consumption"? Will health plans (of any type) try to address it? What happens when a primary care physician makes a referral or recommends a course of treatment that the consumer believes to be less cost-effective or medically effective than an alternative? The revered patient-professional relationship can be both a remedy to the problem of poor information and a barrier to cost-effective treatment choices.

Although much of the rhetoric surrounding consumer-directed health plans stresses consumer control, it is in the interest of both managed care plans and consumer-directed plans for enrollees to take greater responsibility for their health care costs. Should the highest priority be taking charge of health care spending after the onset of illness, or would it be more productive to provide greater incentives for enrollees to take charge of their diet, exercise regimens, and risky lifestyles? How will either managed care or consumer-directed plans address that problem?

When any health plan designs its products, there is a question of balance. Any plan can offer smaller provider panels, tighter referral restrictions, and lower premiums, but how small, how restrictive, and how much lower? Advocates of increased consumer autonomy obviously believe that managed care plans have struck a poor balance for consumers, but it is by no means obvious that quasi-autonomous consumers operating in the cooperative purchasing arrangements required by insurance and facing the same supply-side constraints as managed care plans can do better.

Some of the rhetoric surrounding consumer choice addresses the possible trade-off of price and quality, but what if the trade-off is between different types of quality? For example, what if the hospital with the best cardiovascular surgeons has the highest rate of nosocomial infections or inpatient prescription drug errors? How will either quasi-autonomous consumers or managed care plans deal with these trade-offs?

All health plans must confront four types of price distortions: (1) the distortion caused by insurance itself, (2) community rating, (3) tax-exempt premiums and out-of-pocket spending, and (4) monopoly pricing power on the part of providers in some market areas. How can either managed care or consumer-directed plans achieve the optimal balance of risk protection and moral hazard? Managed care plans began experimenting with copayments more than a decade ago. Tiered copayments for providers are a natural extension of tiered pricing of pharmaceuticals. High deductibles and "doughnut holes" are other options, but unlike co-insurance and copayments, they fail to address the reality of multiple episodes of illness during the contract period.

Employers typically require health plans to "community rate"—that is, to charge the same premium for all of their enrollees within the firm. This practice can lead to inefficient enrollment in the plans, including the nonoffering of the plan (a "death spiral"), when health risk is related to the consumer’s willingness to pay for the plan.²⁶ The price distortion of community rating applies equally to all plan types that meet that condition.

The discussion of high-deductible plans has added a new dimension to the long-standing critique of tax-exempt health insurance premiums and health care spending. Advocates of consumer direction note that health spending in comprehensive health insurance plans is incorporated into the premium, which often is entirely tax-exempt. Plans with significant point-of-purchase cost sharing are placed at a tax disadvantage unless the consumer’s out-of-pocket payments also can be paid with tax-exempt dollars. However, the ability to accumulate "portable" tax-free dollars could tilt the tax inequity in favor of consumer-directed plans. The exemption of out-of-pocket premiums from personal income taxes at the federal level (and most states) will continue to place lower-cost plans at a competitive disadvantage.²⁷

Both managed care and consumer-directed plans will find themselves operating in markets in which health care providers have established a degree of monopoly pricing power. Managed care plans can use network exclusion, quality-based PPOs, or the establishment of an owned clinic to threaten members of a pricing cartel. To remain price-competitive, consumer-directed plans will need to develop their own strategies that preserve the concept of consumer autonomy.

Concluding Comments

Top The Problem: Market Failure Managed Care And Coordinated... Consumer-Directed Plans And... Challenges And Opportunities For... Concluding Comments NOTES

 
The choice between the coordinated agency and semi-autonomous consumer models is not unique to the health care industry. Many markets for many goods and services feature varying degrees of consumer autonomy and coordinated agency. The question now being sorted out is whether medical care is more like the ready-to-eat breakfast cereal industry, the individual stocks in a mutual fund manager’s portfolio, or the tradesmen working for a general contractor.²⁸ Few people hire agents to choose their breakfast cereal, but consumers vary in their desire to pick their own stocks or be their own general contractors. In most markets, autonomous consumers coexist peacefully with coordinated agency organizations.

Advocates of consumer autonomy focus on one particular type of market failure: the price distortion due to insurance. But that price distortion is by no means the only problem consumers face in the market for health care services. Restricted market entry, distorted prices, and poor consumer information also are important. Consumer-directed plans rely on and hope for improved consumer information, but they do not actually improve consumer information, per se.

All approaches to the organization and delivery of health care services involve trade-offs. Advocates for consumer-directed plans seem terribly unhappy with the trade-offs offered by managed care firms, but these firms have some impressive accomplishments to their credit, and they are the most natural entities to perform the consumer information tasks required of consumer-directed plans. Perhaps the most convincing evidence of the symbiotic relationship between the two is the acquisition of consumer-directed plans by managed care companies. UnitedHealthcare recently purchased Definity and has owned Golden Rule since 2003.

Porter and Teisberg’s response to dissatisfaction with managed care is to transfer activities from health plans to the employer. Their list of activities titled "What employers can do immediately" contains many tasks that managed care plans now perform, but it is unclear why employers will be better at these tasks than managed care plans.²⁹ Either entity will find itself having to balance the demands of consumers against those of providers.

Managed care organizations undoubtedly have made mistakes, and perhaps they have chosen a mix of care management and premiums that is distasteful to many consumers. If so, then consumer-directed plans might be a useful way to explore different combinations of care management and premiums. Head-to-head competition, with equalized tax treatment and adequate risk adjustment, should yield a fair test.

The health insurance purchasing strategy with the most compelling empirical evidence for efficiency is multiple health plan offerings with a fixed contribution to premiums.³⁰ There is no reason why consumer-directed plans should not be included in that mix, but conversely, no reason why they should be exempt from competition with managed care plans. Consumers of insurance never will be entirely autonomous, and many may prefer to subcontract a substantial proportion of care management to third parties. The most productive focus for policy analysts and "sponsors," including employers and government health insurance programs, is to encourage the development and maintenance a new type of HMO: the "healthy market organization," in which a variety of consumer preferences are matched to a variety of health plan products.

Editor's Notes

 
Bryan Dowd (dowdx001{at}umn.edu) is a professor in the Division of Health Services Research and Policy, School of Public Health, University of Minnesota, in Minneapolis.

An earlier version of this paper was presented at "Health Care Market Competition: How Well Can It Work?" at Lansdowne, Virginia, 29 April 2005. The meeting was cosponsored by Health Affairs, the Kaiser Permanente Institute for Health Policy, and the Center for Studying Health System Change. The author thanks Laura Tollen for helpful comments. Any errors are the sole responsibility of the author.

NOTES

Top The Problem: Market Failure Managed Care And Coordinated... Consumer-Directed Plans And... Challenges And Opportunities For... Concluding Comments NOTES

 

1. D.I. Kass and P.A. Pautler, Physician Control of Blue Shield Plans, Staff Report of the Bureau of Economics to the Federal Trade Commission (Washington: U.S. Government Printing Office, 1979).
2. M.E. Porter and E.O. Teisberg, "Refining Competition in Health Care," Harvard Business Review 82, no. 6 (2004): 65–76.
3. The distortion is avoided when the pay-off from insurance is in the form of an indemnity, lump-sum payment, rather than a subsidy for the price of care.
4. See, for example, the Patient Choice Health Plan in Minneapolis, Minnesota (home page: www.patientchoice.com/index.html).
5. Henry J. Kaiser Family Foundation and Health Research and Educational Trust. Employer Health Benefits: 2003 Annual Survey, September 2003, www.kff.org/insurance/ehbs2003-abstract.cfm (18 August 2005).
6. R.H. Miller and H.S. Luft, "HMO Plan Performance Update: An Analysis of the Literature, 1997–2001," Health Affairs 21, no. 4 (2002): 63–86[Abstract/Free Full Text]; and R.H. Miller and H.S. Luft, "Does Managed Care Lead to Better or Worse Quality of Care?" Health Affairs 16, no. 5 (1997): 7–25.[Abstract]
7. K.E. Thorpe, A. Atherly, and K. Howell, "Medicare+Choice: Who Enrolls?" (Unpublished paper, Department of Health Policy and Management, Emory University, 25 April 2002).
8. R.R. Bovbjerg and R.H. Miller, "Managed Care and Medical Injury: Let’s Not Throw Out the Baby with the Backlash," Journal of Health Politics, Policy and Law 24, no. 5 (1999): 1145–1157.[Medline]
9. A.C. Enthoven and S.J. Singer, "Unrealistic Expectations Born of Defective Institutions," Journal of Health Politics, Policy and Law 24, no. 5 (1999): 931–940[Web of Science][Medline]; L.T. Kohn, J.M. Corrigan, and M.S. Donaldson, eds., To Err Is Human: Building a Safer Health System (Washington: National Academies Press, 1999); and M.L. Millenson, "The Silence," Health Affairs 22, no. 2 (2002): 103–112.
10. W.A. Zelman and R.A. Berenson, The Managed Care Blues and How to Cure Them (Washington: Georgetown University Press, 1998), 121–122.
11. S.L. Burton, "Why Liberals Should Embrace Managed Care," Journal of Health Politics, Policy and Law 24, no. 5 (1999): 911–919.[Web of Science][Medline]
12. M.V. Pauly, "In Boom Times, Managed Care Is a Bust," Wall Street Journal, 15 March 2000.
13. M. Pauly and S. Nicholson, "Adverse Consequences of Adverse Selection," Journal of Health Politics, Policy and Law 24, no. 5 (1999): 921–930.[Web of Science][Medline]
14. R.E. Herzlinger, Consumer-Driven Health Care: Implications for Providers, Payers, and Policymakers (San Francisco: Jossey-Bass, 2004).
15. Porter and Teisberg, "Refining Competition."
16. J.A. Nyman, The Theory of Demand for Health Insurance (Stanford, Calif.: Stanford University Press, 2003); and J.A. Nyman, "The Value of Health Insurance: The Access Motive," Journal of Health Economics 18, no. 2 (1999): 141–152.[CrossRef][Web of Science][Medline]
17. M. Rothschild and J. Stiglitz, "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," Quarterly Journal of Economics 90, no. 4 (1976): 629–649.[CrossRef][Web of Science]
18. R. Feldman and B.E. Dowd, "Risk Segmentation: Goal or Problem?" Journal of Health Economics 19, no. 4 (2000): 499–512.[CrossRef][Web of Science][Medline]
19. Pauly and Nicholson, "The Adverse Consequences of Adverse Selection."
20. S.T. Parente, R. Feldman, and J.C. Christianson, "Employee Choice of Consumer Driven Health Insurance in a Multiplan, Multiproduct Setting," Health Services Research 39, no. 4, Part 2 (2004): 1091–1112.[Medline]
21. L.A. Tollen, M.N. Ross, and S. Poor, "Risk Segmentation Related to the Offering of a Consumer-Directed Health Plan: A Case Study of Humana Inc.," Health Services Research 39, no. 4, Part 2 (2004): 1167–1188.[CrossRef][Web of Science][Medline]
22. J.C. Robinson, "Hospital Tiers in Health Insurance: Balancing Consumer Choice with Financial Motives," Health Affairs, 19 March 2003, content.healthaffairs.org/cgi/content/abstract/hlthaff.w3.135. For more information about HealthFront, see HealthFront, "Compare Your Care," www.healthfront-info.org/index.asp?pageID=2 (18 August 2005).
23. Herzlinger, Consumer-Driven Health Care.
24. Porter and Teisberg, "Refining Competition."
25. Pauly and Nicholson, "The Adverse Consequences of Adverse Selection."
26. By "inefficient enrollment," I mean that an employee would join one plan if he or she were charged an actuarially fair premium by both plans, but decides to join another plan when plans community-rate their premiums. See R. Feldman and B. Dowd, "Must Adverse Selection Cause Premium Spirals?" Journal of Health Economics 10, no. 3 (1991): 349–357[Medline]; D. Cutler and R. Zeckhauser, "Adverse Selection in Health Insurance," in Frontiers in Health Policy Research, vol. 1, ed. A.M. Garber (Cambridge, Mass.: MIT Press, 1998), 1–31; and Feldman and Dowd, "Risk Segmentation."
27. B.E. Dowd et al., "The Effect of Tax-Exempt Out-of-Pocket Premiums on Health Plan Choice," National Tax Journal 54, no. 4 (2001): 741–756.
28. Herzlinger argues that her choice of health plans should be like her choice among mutual funds for her individual retirement account. Ironically, the choice among mutual funds is very much like the choice among managed care plans in the sense that management of individual stocks (by analogy, health care services) is done by a third party. A better example might be management of one’s own stocks versus investing in a mutual fund. Herzlinger, Consumer-Driven Health Care.
29. Porter and Teisberg, "Refining Competition" (see p. 75 for list).
30. J.P. Vistnes, P.F. Cooper, and G.S. Vistnes, "The Effect of Competition on Employment-related Health Insurance Premiums," International Journal of Health Care Finance and Economics 1, no. 2 (2001): 159–187[Medline]; and B.E. Dowd and R. Feldman, "Employer Premium Contributions and Health Insurance Costs," in Managed Care and Changing Health Care Markets, ed. M.A. Morrisey (Washington: AEI Press, 1998), 24–54.

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