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With the passage of the Medicare Modernization Act of 2003 (MMA), Congress has tried to encourage a vast migration by beneficiaries from traditional fee-for-service Medicare to managed care. Congress has attempted this by using financial incentives for providers and managed care organizations and by re-designing benefits for enrollees. From one perspective, the new law can be seen as an ambitious attempt to create markets and competition where little existed before. To promote this transition, the MMA offers a mix of subsidies, complex regulation, and new benefits that may induce significant changes in both the supply and demand for Medicare services. On the other side of the coin, the law contains provisions that are unmistakably designed to create a domain of competition that is not a level playing field. Beneficiaries may be seduced by aggressive marketing, especially for new drug benefits, and by bait-and-switch tactics to leave a program that has consistently enjoyed enormous popular approval. Ultimately, however, the complexity of the MMA, the probability that the federal government may reduce its financial support in the future, and the bewildering choices facing seniors mean that change may be slower than the law’s proponents hoped. Further, a close examination of the competitive dynamics that the MMA has set in motion reveals a number of formidable obstacles to the development of markets that will efficiently serve the needs of Medicare beneficiaries.
