Competitive bidding: A different kind of voucher plan

Bryan Dowd and Robert Coulam provided feedback on an earlier draft of this post.

I’ve been encouraged to be clearer about how competitive bidding is and is not like the Ryan-Rivlin plan. Actually, I’ll do you one or two better. First I will tell you how competitive bidding is like current Medicare. Then I’ll tell you how it isn’t like Medicare. Finally, I’ll contrast it with Ryan-Rivlin. I’ve written all of this before. You can find my prior posts on competitive bidding under the competitive pricing tag (the two terms are synonymous).

Competitive bidding is like current Medicare in the following ways:

  • The Medicare standard benefit is maintained as a required minimum that must be offered by all participating plans.
  • A Medicare FFS option remains available to all beneficiaries.
  • Private plan options are available where offered.
  • For additional premium, beneficiaries can purchase additional coverage beyond the standard Medicare benefit.
  • The government’s contribution to premiums is income and risk adjusted.

Competitive bidding is not like current Medicare in the following ways:

  • Under competitive bidding, the government’s contribution to premiums is set so that the beneficiary’s out-of-pocket premium for cheapest plan in a market (county) offering the required, standard benefits is no more than the Part B premium.
  • Therefore, at least one plan in each county is available to all beneficiaries at no more than the Part B premium – i.e., at no added cost compared to current policy.  But that plan will vary by market – what’s guaranteed at the Part B premium is access to a qualified plan, not to FFS, i.e., you are guaranteed a benefit at that price, not a “delivery system”. The premium for FFS Medicare may or may not be the lowest (it’s worth noting that FFS is the lowest in many counties), and if it is not, beneficiaries will have to pay more than the Part B premium for FFS Medicare.
  • Private plans and FFS Medicare compete on a level playing field.
  • Given that competition, FFS might be allowed to do what plans do as a matter of course – e.g., to modernize the benefit, offering more of what beneficiaries want – subject to the significant restriction that the benefit remain at least as generous as the standard benefit.
  • Thus, the minimum, required benefit package is provided to all beneficiaries at the lowest cost to taxpayers allowed under current policy – i.e., at the Part B premium.

Competitive bidding is not like the Ryan-Rivlin plan in the following ways:

  • Competitive pricing maintains a minimum defined benefit.
  • FFS Medicare participates in all markets.
  • Private plans and FFS Medicare compete in offering the minimum defined benefit.
  • The government’s contribution to premiums keeps up with health care costs through the bidding process.
  • Competitive bidding is more market based than Ryan-Rivlin, in precisely the sense that the government faces the consequences of market changes along with others – the government can’t insulate itself from cost inflation, while imposing the risks of inflation on state governments, beneficiaries, providers, plans, and others.  The government in that sense remains a full participant in the system – a consequence of maintaining its responsibility to fund the standard benefit, which is the critical way to maintain important protections for beneficiaries and taxpayers. In competitive pricing, vouchers are set at a level that is directly connected to health care costs (through bids that all plans submit) rather than arbitrary administrative calculations that limit the government’s exposure, but no one else’s.

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