• Medicare and FEHBP are very different

    Igor Volsky shares Politico Pro’s David Nather’s list of potential savings in Medicare for the Super Committee to consider. It’s worth a look. I have no doubt there is something in it for everyone to hate. I’m not going to pick it apart. I just want to make one point about this idea:

    Premium support pilot program: Obama’s fiscal commission proposed testing the idea of “premium support” — House Budget Committee Chairman Paul Ryan’s idea for reforming Medicare — by trying it out in the Federal Employees Health Benefits Program, which gives health coverage to federal workers. It would give these workers a subsidy for their coverage that grows slowly from year to year, saving money along the way.

    This would be a good test of how such a program would work for FEHBP, but would be a lousy one for how it might work in Medicare. Why? Medicare and FEHBP are very different, as I explained in a commentary on Walton Francis’s book on FEHBP,

    Francis writes knowledgeably about provider and insurer rent seeking in Medicare. With a program micromanaged by Congress, this is nearly inevitable. That’s why the Independent Payment Advisory Board (IPAB) created by the ACA is a good idea. Whether making decisions about how to pay private plans (voucher or subsidy levels) or changes to FFS Medicare, the IPAB or similar entity that is relatively immune from political meddling should be in charge. Unfortunately, the IPAB will not have a broad mandate so it can’t be as powerful an instrument for change as it might otherwise be.

    How has the FEHBP, which does not operate under an IPAB-like entity, escaped the rent seeking that plagues Medicare? Francis’s answer is that it’s the private nature of the program. Congress sets voucher levels and washes its hands of the whole thing. I don’t think that’s the full answer. I think Medicare–even the privatized arms of it–are subject to more rent seeking than the FEHBP due to the relative size of the programs. Medicare expenditures exceed those of the FEHBP by a factor of ten. It serves over five times the number of beneficiaries. Since stakeholders have limited resources, they get far more bang for their advocacy bucks by lobbying on Medicare as opposed to FEHBP, a point I made in a paper with respect to VA and Medicare, trying to explain why the drug benefits of those two programs are so different (summarized here).

    The upshot is that, short of IPAB-like oversight, I think it is unlikely that there is any way to reorganize Medicare to avoid rent seeking. Sure, make it a voucher program. Do you think voucher levels won’t be the target of rent seeking by plans, beneficiary advocacy groups, the hospital industry, and other providers? Don’t count on it. (Precisely my critique of Rep. Paul Ryan’s proposal.)

    If an eroding voucher program is a good idea for Medicare, we should just implement it in Medicare after we explain how it overcomes the rent seeking that has plagued Medicare Advantage. There’s no need to “test” it in FEHBP unless the plan is to erode benefits in FEHBP. But if that’s the plan, how does that help Medicare?


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