Defective Design: Regional Competition in Medicare

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.

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