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Abstract

One of the primary goals of the Medicare Modernization Act (MMA) of 2003 was to re-establish competition among private health plans in Medicare. At one level, that goal has been met. Thanks in part to more generous payment levels and more flexible regulations, numerous private plans now offer the new outpatient prescription drug benefit and most seniors can choose a comprehensive health plan (including preferred provider organizations, health maintenance organizations, and private fee-for-service plans) as an alternative to traditional Medicare. However, plans offering the drug benefit solely (rather than the full benefit package) are not sustainable without continued heavy subsidies, and defects in the design of the MMA inhibit effective competition between traditional Medicare and private plans. Although the drug benefit might prove to be a significant obstacle to future reforms, it is an important test of competition and consumer choice in Medicare.

Joseph Antos is the Wilson H. Taylor Scholar in Health Care and Retirement Policy at AEI.