Managed care in general and HMOs in particular have become the vehicle of choice for controlling health care spending in the private sector. By several accounts, managed care has achieved its cost-containment objectives. At the same time, the percentage of Americans without health insurance coverage continues to rise. For-profit and not-for-profit hospitals have traditionally financed care for the uninsured from profits derived from patients with insurance. Thus the relationship between growth in managed care and HMOs,hospital “profits,” and care for the uninsured represent an important policy question. Using national data over an eight-year period, we find that a ten-percentage point increase in managed care penetration is associated with a two-percentage point reduction in hospital total profit margin and a 0.6 percentage point decrease in uncompensated care.

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