Economic Theory and Political Reality: Managed Competition and U.S. Health Policy

Abstract

During the 1992 campaign, candidate Bill Clinton made the strategic decision to embrace many aspects of an economic model called “managed competition” in his approach to health‐care reform. Managed competition ideas did not die when Clinton’s health plan expired. Instead, they informed the 1997 expansion of a demonstration project into the Medicare + Choice program. Today, the Medicare + Choice legacy lives on in the Medicare Advantage and prescription drug programs created by the Medicare Prescription Drug, Improvement and Modernization Act of 2003. Shortcomings of the managed competition approach received little public attention during the debate over the Medicare Modernization Act, despite the fact that the record of Medicare + Choice is disappointing in a number of respects. There are serious questions about the ability of the managed competition approach to control costs and achieve equitable access to high‐quality care. Nevertheless, the approach remains influential largely because of political considerations.

Commentary: Regulating Health Care Prices with One Hand Tied Behind Your Back: A Critical Evaluation of a Market‐Oriented Proposal

“…Because the private plans drew a favorable selection 5 of beneficiaries, the premiums paid on their behalf cost taxpayers more than the costs that the beneficiaries would have incurred had they remained in traditional Medicare. Nevertheless, bowing to constituent and insurer pressure, Congress enacted payment increases for the private plans, which President Clinton signed into law (see Kreier 2006 and the references cited therein. )…”

A Dynamic Model of Health Plan Choice from a Real Options Perspective

“…For a skeptical view of the potential of managed competition to control health care costs, seeKreier (2006).…”