An emerging solution to health care market failures involves a mix of federal/state regulation and private purchaser initiatives.

Market forces play an essential role in the regulation of managed care, the service that combines health insurance and health care delivery. Markets have successfully reduced overall health care costs and maintained quality, but because of the special characteristics of the market for managed care, market forces alone fail to produce an efficient and equitable allocation of health care resources. Collective action is needed.

This paper outlines the roles of market forces and collective action in a high-quality and tolerably (if not optimally) efficient and equitable health care system. A blend of market forces and collective action, including government action, is necessary for a good outcome, although where possible and practical, private-sector collective action is preferable. Of course, there is a great deal of government action in health care, and this paper is not a call for more. Rather, it attempts to clarify the kinds of collective action that are needed to correct market failures.