For years, John Goodman of the National Council on Policy Analysis has been a sharp critic of the “managed competition” model championed by Alain Enthoven and that helped shape the Dutch health system. He recently linked to a critique of the Dutch system by Kieke Okma, Theodore R. Marmor and Jonathan Oberlander, which reminded me of Goodman’s own writing on the subject.

Consider the following, drawn from his book (co-authored by Gerald Musgrave and Devon Herrick) Lives at Risk [PDF]:

Health plans … face competitive pressures to adjust the delivery of health care until the cost-of-care line coincides with the (community-rated) premium line. This means that health plans have a strong financial self-interest in underproviding services to the sick and overproviding services to the healthy. Left unchecked, the end result of this process is a condition under which each person receives health services whose cost is exactly equal to the premium he or she pays.

Advocates of managed competition have embraced a number of risk adjustment strategies to mitigate these perverse incentives. Yet as Goodman goes on to observe, these strategies haven’t met with much success. Managed competition and single-payer health systems gravitate towards the same outcome (overprovision for the healthy, underprovision for the sick) for different reasons (perverse incentives in the first case, the electoral imperative to cater to the interests of the healthy median voter in the second).

NCPA’s alternative approach, in broad outline, can be found here. I continue to be partial to some of the insights in Harold Luft’s Total Cure, particularly its emphasis on a publicly-chartered reinsurance program. But I’d be curious to hear Goodman’s critique of the idea, as I’ve profited from his analysis.