Medicare vs. FEHBP

Walton Francis sent me his book Putting Medicare Consumers in Charge: Lesson from the FEHBP. As is the case for any book on health care I receive, I read it. As is the case for any book I read, I’m going to tell you a little bit about what I think of it. In brief, the book is a thorough analysis of two big, government-run health insurance programs: Medicare and FEHBP. In the analysis, Medicare itself is decomposed into Medicare Advantage (MA), the Part D drug benefit, and original, FFS Medicare. Medigap, or Medicare supplements, is also considered.

What complicates the story–in a good way–is that Francis is even handed in his analysis. No program gets a free pass and none are put on a pedestal. He has laudatory and critical things to say about every one of them. However, FFS Medicare is the largest target of criticism, perhaps deservedly so. In contrast to my expectations, and the title, FEHBP is not held up as the exemplar of excellence in all respects. In many but not all ways, Francis thinks MA and certainly Part D are better run. On the whole, his point is that a wide array of private plans, subsidized with vouchers that expose beneficiaries to the full marginal cost of richer benefits (with accommodations for income and cost-sharing adjusted for value) is the best model for an efficient public health insurance program.

The other thing that complicates the story is that the various pieces of the patchwork quilt don’t operate in isolation. FEHBP serves as a supplement to Medicare for retirees, as do Medigap plans. Changes in Medicare spill over into the private market. MA has spillovers to FFS Medicare, as does Part D, and so on. Francis does a good job of pointing all this out. To his credit, he does not dumb things down.

The book is thought provoking and, in particular, caused me to ponder deeply two things: MA to FFS spillovers and political rent seeking. I’ll address the former in a post tomorrow. It is very mathy and long, so I can’t include it here. Suffice it to say there is insufficient evidence in the literature to make a strong claim of large cost-saving MA to FFS spillovers. There likely is a spillover, but he (and others) make too much of one result in the literature in suggesting (or hoping) how big it might be.

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.)

There are a number of other things I could add to this discussion based on Francis’s book: the role of standardization in bidding (he advocates no plan standardization, which is incongruous with a competitive bidding system, which he also supports), the fact that FEHBP benefits by requiring proposed plan premiums be in line with other employer groups (no equivalent comparison exists for Medicare so it cannot operate that way), and a different take on cost shifting (I don’t think the literature is ambiguous on this; it’s just that many folks don’t read the literature properly), among others. But this post is long enough.

I want to conclude with two reactions to the book that are about its style, not content. These may reveal more about me or the book’s editor(s) than Francis. The first is that the book is detailed (good), well-referenced (good), and even-handed (good), but redundant, hard to follow, and long (all not so good). I’d have enjoyed it twice as much at half the length. Second, I’d rather not have experienced some of the palpable ire Francis seems to have for some of what he may consider his opposition. For example, he calls the literature on the dangers of risk selection “silly” and “shrill” and in need of a “grip on reality.” He suggests that Atul Gawande is “innocent of knowlege” of the RAND health insurance experiment’s results and what they mean. I doubt that’s true. More importantly, I just don’t find this type of language helpful. It does not elevate my impression of the ideas conveyed, even though they are, objectively, good ideas, many of which I agree with.

Finally, the book’s Afterword is a plea for better data. Yes! I’ll spare you the details, but suffice it to say that we researchers struggle mightily to draw important, policy relevant conclusions from sparse data. If only the government, and the private plans it funds, would provide better access to a richer set of data we could deliver far more precise and conclusive results on some very pressing health policy questions. (I wrote a KHN column about this issue.) On better access to more data for research, Francis and I could not agree more.

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