Summary: "From Adolescence to Mature Adulthood: Thoughts on the Managed Care Kvetch," Uwe E. Reinhardt, Ph.D.
9/23/99 Talk at the Leonard Davis Institute


On September 23, 1999, Uwe Reinhardt, Ph.D. inaugurated the LDI’s 1999 Health Policy Seminar series with a stimulating and engaging talk entitled “From Adolescence to Mature Adulthood: Thoughts on the Managed Care Kvetch.”  He brought his particular brand of “compassionate irony” (as fellow economist and LDI Senior Fellow Mark Pauly, Ph.D. termed it) to the critical issues facing the U.S. health care system today. 

Managed care was inevitable in the United States, Dr. Reinhardt asserted, because the country had a “Disneyland” approach to health insurance and health spending.  Insurance paid for whatever the doctor ordered, and patients had unrealistic expectations of their medical care.  With tongue firmly in cheek, Dr. Reinhardt said that Europeans often comment on these expectations, noting that “Americans are the only people who think death is optional.”

Dr. Reinhardt drew distinctions between managed care, which defines the relationship between some fiscal intermediary and the provider of care, and managed competition, which defines the relationship between private health care regulators (e.g. HMOs) and individual consumers.   Managed  competition requires credible information systems that can provide consumers with data they can use.   However, he pointed out that directly providing consumers with data on outcomes (such as hospital mortality rates) is not effective.  These outcomes should be fed back to providers, who are in a position to understand them and use them to change practice, he added.

Managed care in the U.S. had been neither a complete failure nor a spectacular success, Dr. Reinhardt said.  In the past ten years, it has resulted in a slowdown in the growth of health spending.  A decade ago, the Congressional Budget Office estimated that the U.S. would spend 19% of its GDP on health care; as we approach the millennium, that figure will be 14%. Still, he noted, this represents heavy spending compared to other countries.

Another achievement of managed care is an emphasis on quality measurement and improvement.  Dr. Reinhardt explained that the dividends of this work may not be apparent for ten years, but that the U.S. had done more than most other countries (except perhaps Britain and Canada) to define and measure quality of care.

The biggest shortcoming of managed care was its “the failure to achieve mission impossible,” Dr. Reinhardt noted wryly.  It could not cut health care costs, improve quality, and maintain the open-ended payment policies of its indemnity predecessors.  It suffered from clumsy public relations as well: patients and providers felt that managed care executives were regulating care, rather than just paying for it.

Consumer “choice” under managed competition did not live up to expectations, Dr. Reinhardt said.  Consumers perceived it as unpleasant, as they were forced to choose among alternatives (often just two plans) that were chosen for them by employers.  A much better system would be for consumers to form buyers’ cooperatives to purchase care, instead of having employers offer them a choice of just two plans.

He described the following prerequisites for effective  managed competition: one (or a few) standard benefit packages, good risk adjusters for capitation, a “farmer’s market” for health plans, and objective information on health plans.   He pointed out that a major barrier to effective implementation of managed competition is this country’s “reckless underinvestment” in information systems. 

“Is managed care dead in the United States?” Dr. Reinhardt asked.  Answer: no.  He likened the state of managed care to the invention of the wheel. He joked that the person who invented the wheel was smart, but that the person who invented the other three was a genius. “We have the wheel, but we haven’t made it work,” he said.  

Dr. Reinhardt described the challenges facing policymakers.  “Should the employer-based system survive?  Should Medicare be privatized?  Should premiums reflect health status?  Should providers be paid fee-for-service or by capitation?  Should patients choose from separate entities, or integrated plans?”  The larger choice, he explained, is between a free market without universal coverage, or a system of universal care.  “In the free market, the poor do worse.  In the other system, the poor also do worse, but not as worse.”

Dr. Reinhardt predicted that this country will decide to ration care by income.  The poor will be guaranteed a minimum of care, with budgets tightly controlled; others will buy whatever they want.  This two-tiered health care system, he maintained is the only hope for the uninsured.

He concluded with a “sure-thing” forecast of the future that the audience could count on.  As he put it, simply, “shift happens.”

Dr. Reinhardt’s presentation was also the 1999 Charles C. Leighton, M.D. Memorial Lecture. The annual lectureship, made possible through an endowment from the Merck Company Foundation to the Leonard Davis Institute, honors the memory of Dr. Leighton, former Senior Vice President, Administration, Planning and Science Policy for the Merck Research Laboratories.  Each year, the lecture brings together policy makers, corporate leaders, researchers, students, and faculty for substantive discussion on leading health policy issues.

Biosketch: Uwe E. Reinhardt

Uwe E. Reinhardt, a native of Germany, has taught at Princeton University since 1966, rising through the ranks from assistant professor of economics to his current position. He has taught courses in both micro- and macro-economic theory and policy, accounting for commercial, private non-profit and governmental enterprises, financial management for commercial and non-profit enterprises, and health economics and policy.

Professor Reinhardt received the Bachelor of Commerce degree from the University of Saskatchewan, Canada in 1964, when he was also awarded the Governor General's Gold Medal as Most Distinguished Graduate of his graduating class. He received the Ph.D. in economics from Yale University in 1970. His doctoral dissertation was entitled Physician Productivity and the Demand for Health Manpower. He has received honorary doctorate degrees from the Medical College of Pennsylvania, from Mount Sinai School of Medicine, City University of New York and from the College of Optometry of the State University of New York. In 1998, he was honored with the Second Century Award for Excellence in Health Care by the Columbia University School of Nursing.

Professor Reinhardt has served on a number of government committees and commissions, among them the National Council on Health Care Technology of the then U.S. Department of Health and Welfare (1979-82) and the Special Medical Advisory Group of the then Veterans Administration (1981-85). From 1986 to 1995 he served three consecutive three-year terms as a Commissioner on the Physician Payment Review Commission (PPRC), established in 1986 by the Congress to advise it on issues related to the payment of physicians.

 In 1978, Professor Reinhardt was elected to the Institute of Medicine of the National Academy of Sciences, on whose Governing Council he served from 1979 to 1982. At the Institute, he has served on a number of study panels, among them the Committee on the Implications of For-Profit Medicine, a study panel on Dental Care in the United States, a panel on the Nursing Shortage, the Institute's Committee on Technical Innovation in Medicine and on the Committee on the Implications of a Physician Surplus.  He currently serves on the Institute's Board on Health Care Services, which guides the Institute's research in health-services research. He is past president and a Distinguished Fellow of the Association of Health Services Research on whose Board ha served for over a decade.

 During 1987-90, Professor Reinhardt was a member of the National Leadership Commission on Health Care, a private sector initiative established to develop options for health-care reform and he continues to serve on that body's successor, the National Leadership Coalition on Health Care, co-chaired by former Presidents Carter and Ford.

 Professor Reinhardt currently is a member of the Council on the Economic Impact of Health Reform, a privately funded group of health experts established to track the economic impact of the current revolution in health-care delivery and cost control. He is also on the Board of Advisors of the National Institute of Health-Care Management, a Washington-based think tank devoted to issues in managed care.  In 1997, he joined the Pew Health Professions Commission, which explores the implication of health-systems change on the health workforce. Also in 1997, he was appointed to the External Advisory Panel for Health. Nutrition and Population of The World Bank, an expert panel that advises The World Bank on its far-flung activities in health care. Since 1997 he has served on the Board of Trustees of the Duke University Health System. Since that time, he has also chaired the Coordinating Committee of The Commonwealth Fund's International Program in Health Policy. In 1998, he was appointed as Commissioner of the Kaiser Commission on Medicaid and the Uninsured.

Professor Reinhardt has been a member of numerous editorial boards, among them the Journal of Health Economics, the Milbank Memorial Bank Quarterly, Health Affairs, The New England Journal of Medicine and The Journal of the American Medical Association.


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