Managed Care and Health Care Expenditures:

Increases in the activity of managed care organizations may have "spilover effects, " influencing the entire health care delivery system's performance, so that care for both managed-care and nonmanaged-care patients is affected. Some proposals for Medicare reform have incorporated spillover effects as a way that increasing Medicare HMO enrollment could contribute to savings for Medicare. This paper investigates the relationship between HMO market share and expenditures for the care of beneficiaries enrolled in traditional fee-for-service Medicare. We find that increases in systemwide HMO market share (which includes both Medicare and non-Medicare enrollment) are associated with declines in both Part A and Part B fee-for-service expenditures. The fact that managed care can influence expenditures for this population, which should be well insulated from the direct effects of managed care, suggests that managed-care activity can have broad effects on the entire health care market. Increases in Medicare HMO market share alone are associated with increases in Part