Limitations of competitive bidding

Before anyone, including me, gets too starry eyed about competitive bidding among Medicare plans, it’s worth repeating its limitations. Igor Volsky expressed some recently, including that:

  1. Traditional (aka, “fee-for-service”) Medicare would be available but at prices varying by market. Some would consider that an inequity. Some would not, provided there was some plan — possibly a private one — offering the standard Medicare benefit available in every market at an affordable price to every beneficiary.
  2. Private plans may find ways to capture the good risks, leaving traditional Medicare holding the bag for the bad ones (meaning the relatively sicker and costlier beneficiaries). A lot is riding on risk adjustment. What would help improve risk adjustment is if private plan-based utilization data were made available to researchers in the same quantity and quality and on the same terms as it is available for traditional Medicare. We know a lot less about how private plans affect health care utilization and health than we should due to a dearth of research-ready data. One condition for competitive bidding could be better access to all data from plans subsidized by taxpayers (with all appropriate privacy protections, of course).

To these I would add this, from a post long ago:

Competitive bidding can save money, but it is not a panacea for all of Medicare’s ills, and it doesn’t address every issue associated with the program. It cannot tell us what the standard, required set of benefits upon which plans bid ought to be — only that we need consensus on such a benefit. It would mean that the beneficiary cost of fee-for-service coverage, as well as private plan coverage, would vary across markets, a feature some might consider inequitable. It also cannot, by itself, change the growth rate of health care costs. For that, further reforms to how fee-for-service and [Medicare] Advantage plans pay for care would be required, as well as changes system-wide, well beyond Medicare. However, bidding would ensure that taxpayers get the best value per dollar within the framework of the program’s hybrid public and private structure.

Finally, as this post should make clear, I am sensitive to the concerns (largely from the left) that competitive bidding would spell the beginning of the end for traditional Medicare, a “giveaway” to private plans. One thing that might be considered (though I am not naive about the political feasibility here) is the addition of a Medicare-rate-based public option in the ACA exchanges as part of a competitive bidding package for Medicare. To the extent such an option was popular, it would be a countervailing “takeaway” from private plans and something attractive to the left. If this package were to come to fruition, we’d have an ACA system (which already includes competitive bidding) that mirrors the Medicare one.

If that happened, the path to a more coherent and unified health system structure would be clear. The remaining major deviations from the public-private hybrid, competitive bidding, exchange/managed competition approach would be employer-sponsored plans and Medicaid. The removal of the employer-based tax subsidy, beginning with the Cadillac tax or something like it, would gradually address the former. The latter is a different story.

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