By the time children enter first grade, significant differences in verbal and mathematical competence exist among them.1 These differences reflect variations in (1) inherent ability, and (2) the amounts of human capital acquired before the children reach the age of six.2 The stocks of acquired human capital reflect, in turn, varying inputs of time and other resources by parents, teachers, siblings, and the child. The process of acquiring preschool human capital is analogous to the acquisition of human capital through schooling or on-the-job training. Assuming a constant rental rate for human capital, earnings can be interpreted as a measure of capital stocks at later ages. The IQalso can be This research has been supported by grants to the National Bureau of Economic Research from the Office of Economic Opportunity and the National Institutes of Health.

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Does a prepaid group practice deliver less care than the fee-for-service system when both serve comparable populations with comparable benefits? To answer this question, we randomly assigned a group of 1580 persons to receive care free of charge from either a fee-for-service physician of their choice (431 persons) or the Group Health Cooperative of Puget Sound (1149 persons). In addition, 733 prior enrollees of the Cooperative were studied as a control group. The rate of hospital admissions in both groups at the Cooperative was about 40 per cent less than in the fee-for-service group (P less than 0.01), although ambulatory-visit rates were similar. The calculated expenditure rate for all services was about 25 per cent less in the two Cooperative groups (P less than 0.01 for the experimental group, P less than 0.05 for the control group). The number of preventive visits was higher in the prepaid groups, but this difference does not explain the reduced hospitalization. The similarity of use between the two prepaid groups suggests that the mix of health risks at the Cooperative was similar to that in the fee-for-service system. The lower rate of use that we observed, along with comparable reductions found in non-controlled studies by others, suggests that the style of medicine at prepaid group practices is markedly less "hospital-intensive" and, consequently, less expensive.