Managed Care and the Safety Net: More Pain for the Uninsured?

The introduction of managed care has dramatically changed the US health care market. However, most of the literature has focused on analyzing the performance of managed care relative to other types of health insurance, while research focusing on its impact on the uninsured has been minimal. This paper contributes to fill this gap and analyses the impact of managed care on access to care and quality of care for the uninsured. We expand Frank and Salkever's (1991) model to analyze hospitals' decision to provide charity care and use a probit model to test the results empirically. We find that managed care has negatively affected both aspects of the uninsured's health, by increasing the probability of closure of the safety net hospitals and the services most used by the uninsured, and by negatively affecting the quality of government hospitals. Therefore the impact of managed care goes beyond its effect on its enrollees and on efficiency. In fact, by increasing price competition and reducing hospital revenues, managed care penetration has affected the overall health care market. These results have important policy implications. With the introduction of managed care, the health gap between socioeconomic groups will widen and more public subsidies will be needed in order to guarantee the provision of basic health care to the growing uninsured population. The results also bring a new perspective on managed care. Its impact on American health should be analyzed beyond its efficiency implications and more research should be done into its effects on the overall health care market.