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Research

Utilization Management and Cost Sharing
Between Payers and Insurers of Health Care


Lindrooth, R.

Abstract: The tradeoff between the amount of risk held by a managed care organization and utilization management is often over-looked in policy discussions about managed care. A payer of health insurance can induce the managed care organization to engage in the desired degree of utilization management through cost sharing. Only when the payer of health insurance is the government, providers are perfect agents for patients, and the managed care organization can credible commit to a level of utilization management is it optimal for the managed care organization to bear all of the risk. If either the managed care organization cannot commit to a level of utilization management or providers are not perfect agents for patients some degree of cost sharing between managed care organization and the payer is optimal. These results for cost sharing contracts between managed care organizations and payers extend Ellis and McGuire's (1986) analysis of prospective payment of providers.

Utilization Management and Cost Sharing Between Payers and Insurers of Health Care (PDF: 258 KB)

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