About 15 percent of the elderly enroll in private managed care plans. But the competition is stunted because Federal regulators decide, largely independent of market forces, how much the plans charge their enrollees and collect from the Government. The system of Government-set prices causes problem. Managed care plans have been dropping out of the program, contending that the Government fees are set too low. Here the Administration is caught in a political bind.
Most economists recommend moving to a system of competitive bidding.
The idea is let market competition drive the Government's cost to the proper level. But the system that makes good economic sense makes little political sense. If so, the elderly will find themselves financially compelled to switch to managed care, and that is not a threat the Administration is likely to pose in an election year. One option the Administration has considered is moving to partial competitive bidding. The purpose is to unleash competition to drive down the Government's costs.