Are Fee-for-Service Costs Increasing Faster Than HMO Costs?

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Abstract
It is well known that the costs of care at health maintenance organizations (HMOs) at any point in time have been lower than in the fee-for-service sector, but how costs have changed in each of these sectors has been less well-documented. The only previous study, which examined the HMO experience during the 1960s and early 1970s, found that HMO and fee-for-service costs rose at approximately the same rate. The present study, which extends this analysis to the period 1976-1981, also demonstrates that HMO costs increased at a rate not detectably different from that in the fee-for-service sector. These results are consistent with the earlier conclusions that HMOs cause a once-and-for-all reduction in cost. They also indicate that the public has been willing to pay for much of the increased costs of modern medical technology. Key words: fee-for-service; health maintenance organizations; Rand Health Insurance Study; Group Health Cooperative data.

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