The Medicare program was established in 1966 to provide medical care to the elderly and was later extended to the disabled. However, the Health Care Financing Administration (HCFA), the federal agency responsible for the program, must control the cost of enrollee care in a structure that offers no incentive to Medicare recipients to economize on their use of the system and provides perverse economic incentives to providers for cost control. The spiraling cost of health care, the aging population, and the political reality that the Medicare program is seen as sacred by the powerful lobby that represents its recipients, suggests the need for a new approach to Medicare financing. Ronald Vogel examines the political and economic considerations of program reform and shows how Medicare could employ the managed care model for cost control to address the supply side of the equation. More importantly, the pricing problem could be solved by requiring providers to submit competitive, capitated, risk-adjusted bids to HCFA, whose Medicare administration would be decentralized to the state level. Medicare: Issues in Political Economy will appeal to those interested in public policy and health care issues, legislators, policy analysts, government agencies and trade associations, as well as those teaching health care policy and financing in graduate courses and executive education programs. Ronald J. Vogel, former Director, Division of Economic Analysis, Office of Research and Demonstrations, Health Care Financing Administration, is Professor of Public Administration and Policy, and Professor of Economics in the College of Business and Public Administration, University of Arizona.