Mechanisms for Controlling Costs

A previous article in this series, "Painful vs Painless Cost Control," 1 discussed the overall relationship between costs and health outcomes. In this article, we examine specific methods for controlling costs. Financial transactions under private or public health insurance have two components 2 : (1) a financing transaction consisting of the flow of dollars (premiums or taxes) from the payers (individuals and employers) to the health insurance plan (private health insurance or government programs), and (2) a reimbursement transaction involving the flow of dollars from insurance plans to physicians, hospitals, and other providers (Figure). Cost-control strategies can be divided into those that target the financing side vs those that impact the reimbursement side of the funding stream (Table). FINANCING CONTROLS Cost controls aimed at the financing of health insurance attempt to limit the flow of funds into health insurance plans, with the expectation that the plans will then be forced to

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