Competition's impact: a report from the front.

During the 1980s, the United States veered away from an entitlement health policy framework toward the unleashing of competitive forces in health insurance and services. In a health system as vast as the American system, disaggregating the multiple impacts of this revolutionary movement is no easy task. But competition has significantly altered the health care landscape in only five years, confronting policymakers with new challenges. Though many observers believe that Medicare payment reforms were the principal catalyst of market change, the root causes run far deeper. Public and private health care financing reforms stemmed from the collision of hyperinflation in health costs following the 1979 oil shock with the deep recession of 1981–1982. This collision produced a series of weakening aftershocks that lasted well into the decade. The recession resulted in a severe fiscal crisis both for state and federal governments and led not only to Medicare prospective payment but to tightening of Medicaid eligibility and payments as well. However, more significantly, the recession forced a fundamental restructuring of private health coverage, reversing almost three decades of steadily expanding benefits.