Objectives

This paper examines health expenditure growth under two alternative policy approaches : competition-based managed care and state government rate regulation.

Methods

Data are presented on cumulative growth in real per capita health expenditures between 1980 and 1991 so as to compare California, a state with a pro-competitive policy, with the US average and with four states with established regulation programs.

Results

Real per capita expenditures for hospital services in the United States grew 54% between 1980 and 1991, while in California the growth was half the national rate, or 27%. Real per capita expenditures for physician services and drug expenditures in the United States grew by 82% and 65%, respectively, while in California these expenditures increased only 58% and 41%, respectively.

California's growth rate was below that of all four regulatory states for all measures of health care cost inflation.

Conclusions

On the basis of these findings, a properly structured competitive approach could play a significant role in controlling health expenditures in the United States.