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

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.