Working Paper #29

The Changing United States Health Care System
The Effect of Competition on Structure and Performance


Abstract: Originally intended for a European audience, this paper presents a brief summary of how public policies and private economic conditions combined to shape the structure and the nature of competition in the United States health care system. Separate sections review the nature of competition in the hospital sector, the health insurance sector, and the managed care sector. Brief summaries of empirical economic research about the effects of competition on market structure and performance are presented. A major conclusion is that market competition in health care markets is effective in providing consumers with both cost-effective health care and improvements in quality, but that existing tax policy and payment policies in public programs do not allow the effects of competition to reach their full potential.