I’ve narrowly critiqued Representative Paul Ryan’s Medicare voucher plan on the grounds that it is too similar to an expansion of the Medicare Advantage (MA) program, which itself is more costly per beneficiary than traditional fee-for-service (FFS) Medicare. The basis for my understanding of Rep. Ryan’s plan is his own staff, with whom I’ve spoken. The basis for my understanding of MA is my own career studying and publishing on it. So, I’m quite confident in my ability to accurately compare the two and draw policy conclusions.
However, I like to be constructive, and there is a Medicare voucher program I would support, but it must include at least all the elements I list below. Rep. Ryan’s does not. I would, by the way, also support expansion of FFS Medicare under certain conditions as well. How can I simultaneously support annihilating FFS Medicare and expanding it? It’s easy. I support whatever demonstrably works. Read the rest and you’ll see what I mean.
I would support a Medicare voucher proposal that included at least the following provisions:
- Begins with a multi-year MA competitive bidding pilot. If the pilot reveals that MA plans competing on price can reduce risk-adjusted per beneficiary costs to a level below that of FFS with no degradation in health outcomes then I’m interested in a larger competitive bidding based voucher program, otherwise I am not. The pilot should include enough geographic diversity to reveal variations across market types. It is conceivable that vouchers work well in some markets and not others, which itself suggests that a FFS option might need to exist, at least where MA can’t beat it. (Implementation of MA bidding is, itself, politically challenging. Rep. Ryan’s plan calls for MA competitive bidding during a transition period. But the ultimate voucher program under his plan would not include competitive bidding.)
- Isolates the voucher program from political meddling. Under MA, Congress establishes plan payment rules. I’ve already explained why that’s a problem. Under Rep. Ryan’s plan the HHS secretary would have the discretion to adjust the size of vouchers. That’s not any better. My view is that the details of how plan subsidies (voucher levels) are set should be controlled by an independent board, like the Independent Payment Advisory Board (IPAB) that will be established under the ACA. Until politics are more fully removed from the setting of subsidy levels I will not support further expansions of MA. Also, as mentioned, voucher levels should be based on competitive bids. So, the IPAB-like entity would just control the bidding rules and procedures.
- Includes income-related subsidies. Low income individuals should not face the same premium and cost sharing burden as those who are better off. (It is my understanding that Rep. Ryan’s plan has some accommodation for income, as does the current MA program.)
- Establishes a minimum benefit standard or a set of standardized plans. The whole point of a market-based system is to harness the power of consumer choice. But consumers can’t send meaningful signals if the market has an incomprehensible structure. One of the conditions for a competitive market is fully informed participants. The notion that seniors–or anyone–can meaningfully shop in a market with an unlimited number of plans that vary in all possible ways is ludicrous. (There is already evidence that beneficiaries don’t optimally select among the scores of Part D plans available now and that reducing the number of available plans would increase welfare.) The Medicare supplement (Medigap) market is a good model of competition within standardization. Making products more similar encourages competition. Allowing them to vary along a small number of dimensions helps consumers make sensible comparisons consistent with individual preference. Isn’t that the point? (Rep. Ryan’s proposal doesn’t call for the establishment of standardized plans.)
- A fall-back mechanism for highly concentrated markets or ones with poor quality. It is possible that too few firms will participate in some markets, raising premiums well above competitive levels or reducing quality. Some markets could be dominated by a small number of hospitals, driving hospital service prices and/or volume up, which also translate into higher premiums. The plan has to have some way of dealing with such cases. One idea is a fall-back federal option, triggered by some measure of market concentration or beneficiary harm from insufficient competition or low quality. (Rep. Ryan’s plan is silent on this issue, as far as I know.)
- Access to utilization data for research. MA plans do not provide the same level of utilization data that is available for FFS Medicare. This limits our ability to understand how private plans work, what they provide, and what the consequences are for health outcomes. If taxpayers are funding them, or successor voucher-based plans, all utilization data paid for with such funds should be available for research. This would allow qualified research organizations to independently verify the merits of or discover the problems with a market-based insurance system for Medicare beneficiaries. If we’re to move away from FFS Medicare and lose the research data associated with it, I absolutely insist on a greater level of access to private plan data than exists today. This is a serious issue that gets very little attention, despite my efforts.
That’s a minimum set of requirements. I may think of more in the future, as will others with whom I may agree. Also, for me to take any voucher plan seriously it has to be clearly politically viable. I think it’s a pretty tough sell to Medicare beneficiaries. Though MA plans are available everywhere, about three-quarters of beneficiaries opt for FFS Medicare. Thus, an overwhelming majority are voting with their feet for the cheaper option. We taxpayers should be happy about that! Maybe we should just expand FFS Medicare, getting rid of MA altogether? The evidence on cost and beneficiary satisfaction supports it.
Of course FFS Medicare has a cost problem too, though it’s less severe than MA. (Yes, MA plans offer more benefits, but taxpayers still pay for them and beneficiaries don’t value them at anything close to their cost. That’s not a good argument for expanding the program.)
My preference for FFS will strengthen if the provisions of ACA designed to lower FFS costs actually work (ACOs, bundled payments, IPAB, etc.). So, this is all about evidence. I say, do an MA competitive bidding pilot, implement the ACOs, payment bundling, and the like. Let’s see what works. Today, FFS is winning, but it will still bankrupt the country. That’s a Pyrrhic victory in which I have little interest.
PS. One could make an argument that the current arrangement, with MA and FFS Medicare coexisting, is optimal. Maybe the argument would hinge on countervailing forces of rent seeking or on the fact that MA offers models of innovation while FFS Medicare serves to mitigate market power in concentrated insurance and hospital industries. The current arrangement also appears to be a political equilibrium. I’m not making this argument here because I haven’t fully fixed it in my mind. Maybe another time.
