• Another look at Romney’s plan for Medicare

    Reihan Salam* was surprised by my reaction to Mitt Romney’s Medicare plan. He thinks he sees the signs of competitive bidding in it. I think that’s one way to read it, but it is not the only way. Understanding the range of possible interpretations of Romney is instructive.

    First, though, let me say what Romney has pinned down. He wants to maintain traditional Medicare (the public option). He wants to guarantee affordable access to the standard Medicare benefit. He did not specify an arbitrary growth target (GDP+1% or CPI) for premium support. That is, he’s much more oriented toward a defined benefit than a defined contribution. Already these principles distinguish Romney from Rep. Paul Ryan’s view and the plan for Medicare that passed the House last spring.

    Romney still wants to include private plans and harness competition to increase efficiency in provision of the Medicare benefit. Exactly how? It’s not clear. In particular, based on what I read, the nature of how Romney would set premium support levels seems vague and unspecified. In his post, Reihan pointed to a Wall St. Journal article by Jonathan Weisman:

    The Romney campaign, however, is putting its faith in the ability of a competitive market place to maintain health-care quality at lower costs and greater efficiency. He said the private plans would be required to offer coverage at least as good as Medicare’s. Seniors could choose more generous plans but would have to pay more out of pocket. Seniors who choose less expensive plans would be able to keep leftover cash from their vouchers to pay other medical expenses such as co-payments and deductibles.

    Reihan reads this as an endorsement of competitive bidding. I don’t see it. Even a system in which vouchers were set non-competitively could behave this way. Because plans can rebate the Part B premium, today’s Medicare Advantage system does so and it is not a competitive bidding system. MA plans must offer the statutory Medicare benefit. Subsidy levels are set by an administrative formula. Those choosing plans more generous than covered by the subsidy level have to pay more out of pocket. Those choosing cheaper plans pay less, even receiving a discount on the Part B premium, which is tantamount to keeping the “leftover cash.”

    How, then, will Romney distinguish his plan from current Medicare? Will he just adjust the MA payment rates, something being done under the ACA and routinely recommended by MedPAC? Or will he explicitly embrace competitive bidding, which exists in Medicare Part D and in the FEHBP, as well as the future ACA exchanges? My bet is that Reihan is right and that Romney will embrace competitive bidding. But he hasn’t yet.

    (Since his original post, Reihan has updated it to include text of the candidate’s speech. A careful read reveals it is no more specific than what is quoted above.)

    Suppose Romney is proposing (or will propose) some competitive bidding scheme. It matters a great deal what the details are. As Coulam, Feldman, and Dowd showed, depending on the variant, competitive bidding can save anything from a few percent to eight percent of Medicare costs. Which version of competitive bidding is Romney for, if any?

    * Reihan is worth following, if you don’t already. He’s among my favorite policy analysts in the blogosphere, always fair, smart, and interesting.

    • I have tried very hard to understand what is new in Romney’s proposal, how it is different from the current Medicare Advantage system. I just don’t get it. Can you help me?

      • I think that’s the crux of the issue brought up by Mr. Frakt. Because the effects of competitive bidding depend largely on the details, those same lack of details from Mitt Romney makes gauging the potential impact of his reform ideas difficult to discern.

      • No. First Romney has to help me!

    • Let me repeat my statement and hopefully in a more clarified manner.

      It is a mistake to try to analyze a political position in terms of a serious proposal. The Romney plan is an attempt to gain support from Conservatives who support a Ryan approach without the criticism that convertiing Medicare to private insurance with premium subsidies would either make policies unavailable for the elderly or prohibitively expensive. It is not a serious, well thought out plan, as evidenced by the fact that this Forum and others cannot analyze it because of the lack of specifics. Those specifics are not coming, because they would contradict the political value of the proposal.

      The structural of dual systems cannot work. Private plans will cherry pick the healthy seniors, leaving Medicare to provide health insurance for the elderly who are in poor health or who have a health history of illnesses and diseases. No one has been able to identify a single insurance company or single plan that will provide affordable coverage for a 75 year old with a history of heart disease or cancer.

      Medicare is successful because it adheres to the policy of insurance, which requires a large diversified pool. Private insurance with individual underwriting or group underwriting by age group violates the principles of insurance.

      The belief that competition by private insurance will reduces costs is totally contradicted by historical costs of private insurance. Look at the recent results of cost increases of private insurance vs cost increases of Medicare.

      A market approach will work, but only when insurance evolves into a system where providers have an incentive to reduce rather than increase costs. The industry may be moving in this direction as insurers acquire providers and as medical centers acquire medical practices.

      • Got it. I think you are overlooking risk adjustment. You can claim it can’t be sufficient, though you have not done that. However, that raises other questions. See my post forthcoming at noon.