Policy Documents

The Case for Competition in Medicare

James C. Capretta –
September 12, 2011

Rapidly rising Medicare spending is a major cause of the federal government’s budget problems. Proposals to reform Medicare and slow its spending fall into one of two categories: more government micromanagement or empowerment of health care consumers in a functioning marketplace.

Those who promote top-down spending controls optimistically assume that federal regulators can accomplish now something that has eluded Medicare’sadministrators for more than 40 years. In contrast, the market-based approach to reform would harness the power of financial incentives to encourage health care consumersto choose the best, most efficient means of getting services and would reward providers for finding ways to deliver more for less.

Medicare Part D, the prescription drug benefit,
was enacted in 2003 and fully implemented
in 2006. It provides strong evidence that competition
and consumer choice can control the growth of
health care costs for Medicare beneficiaries.