Managed Care and Efficient Rationing

Widespread dissatisfaction with managed care has led to calls for major reform and consumer protection. Although some have concluded that managed care backlash is simply a result of too much rationing, we propose an alternative view that focuses on the nature of services eliminated by managed care. In particular, we point out that managed care rations services largely without regard to consumer preferences. We question whether managed care's emphasis on supply-side control of moral hazard is consistent with the principles of efficient rationing. Further research on the nature of provider and consumer rationing decisions is needed to inform the design of supply-side and demand-side incentives that will lead to an efficient allocation of services. (Summer 2002)