Expenditure limits and cost containment.

Abstract

The Clinton administration's proposal for health care reform would tie limits on premiums and, indirectly, provider payment rates to a national health care budget. An expenditure limit (or global budget) is a mechanism to calibrate the parameters of underlying cost containment policies. This article analyzes provider rate setting and managed competition and discusses how they can be guided by expenditure limits. Particular attention is paid to health systems that include elements of both traditional fee-for-service insurance and organized systems of care. Success in containing costs also will require additional policies that can supplement rate setting and managed competition to achieve specific goals to slow spending growth.