The Political Management of Managed Care: Explaining Variations in State Health Maintenance Organization Regulations

In the 1990s, strong incentives for managed care organizations to control costs, once regarded as a fortuitous confluence of interests, came to be seen as antithetical to consumers' interests in quality of care. In response to this change in political climate, many states have greatly increased their regulatory control of managed care organizations since the mid-1990s. This activity is surprising in an era when public policy on health care issues is usually described as frozen, gridlocked, and/or stalemated as a result of intense activity on the part of organized interests. We take advantage of the variation in state regulations of health maintenance organizations (HMOs) to discover why some governments are able to address policy problems that are often perceived as intractable in a political if not in a true policy sense. From the history of HMOs, the backlash against managed care, and state responses to that backlash, we first extract a number of hypotheses about state regulatory activity. We then test these hypotheses with data on regulatory adoptions by states during the late 1990s and the early 2000s. Last, we discuss the findings with special attention to the role of politics in health care.