The Medicare program is in precarious financial condition because of underf
unding and structural defects in the way it pays providers of medical care.
Given the prevailing anti-tax sentiment, the more promising route for atta
ining Medicare fiscal solvency would seem to lie on the expenditure side of
the equation. This paper proposes a managed care model for reform that rel
ies on an efficient and already-tested form of competitive bidding for the
provision of medical care. It concludes with a discussion of short-run, int
ermediate-run, and long-run budgetary and tax implications for the Medicare
program.