Posting date: August 23, 2005

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Health Affairs, 10.1377/hlthaff.w5.399
Copyright © 2005 by Project HOPE

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Defective Design: Regional Competition In Medicare

¹ Steven Pizer is a health economist, Health Care Financing and Economics, at the Veterans Affairs (VA) Boston Health Care System and an assistant professor of health services at the Boston University School of Public Health.
² Roger Feldman is the Blue Cross Professor of Health Insurance, Division of Health Services Research and Policy, School of Public Health, University of Minnesota, in Minneapolis.
³ Austin Frakt is a health systems research scientist, Health Care Financing and Economics, at the VA Boston Health Care System.

^*Corresponding author.

Abstract

The Medicare Prescription Drug, Improvement, and Modernization Act (MMA) of 2003 creates several new types of private insurance plans in Medicare. The most familiar of these is the preferred provider organization (PPO). Uneven application of regional bidding requirements will place new PPOs at a competitive disadvantage relative to established health maintenance organizations (HMOs). A little-noticed section of the regulations implementing MMA offsets this disadvantage and gives PPOs a strong incentive to bid in some regions, but costs to the taxpayer will be high: up to $60 billion over ten years.

Key Words: Business Of Health, Consumer Issues, Health Reform, Legal/Regulatory Issues, Managed Care - Medicare, Medicare, State/Local Issues, Health Spending, Insurance Market

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