• My thoughts on Rep. Paul Ryan’s Medicare plan (again)

    Today, Rep. Paul Ryan submitted a description of his plan for Medicare to The New York Times. It appears in an Economix post. The key passage is,

    My reform plan makes no changes for those 55 and older, as efforts to save this program ought not disrupt benefits for those in and near retirement. For those now under the age of 55, Medicare would provide seniors with a payment, a list of Medicare-approved coverage options, and the ability to choose a plan that works best for them. The Medicare payment would be adjusted so that the wealthy receive a lower subsidy, the sick would receive a higher payment if their conditions worsen, and lower-income seniors would receive additional assistance to cover out-of-pocket costs.

    It’s not a terrible plan, but it does have flaws, as I’ve pointed out before. My biggest concern is how the government payment is set. As we’ve already seen today and many times in the past, Congress and the Center for Medicare & Medicaid Services (CMS) love to fiddle with payment levels to private plans. That, my dear readers, is how budgets are busted.

    Last I heard (from Rep. Ryan’s staff), the government payments in his plan would be set by the Health and Human Services Secretary. I think we can do better. I think we should set the payments based on a competitive bidding system that includes traditional Medicare among the bidders. Such a system could save tens of billions of dollars per year and has a better chance of being beyond the reach of program administrators, especially so if it is further insulated within an Independent Payment Advisory Board-like entity.

    A few months ago I listed some other features of a Medicare voucher proposal required to earn my full support. Some of them are obsolete, but two remain relevant. They are that the proposal:

    • Establishes a minimum benefit standard or a set of standardized plans. The whole point of a market-based system is to harness the power of consumer choice. But consumers can’t send meaningful signals if the market has an incomprehensible structure. One of the conditions for a competitive market is fully informed participants. The notion that seniors–or anyone–can meaningfully shop in a market with an unlimited number of plans that vary in all possible ways is ludicrous. (There is already evidence that beneficiaries don’t optimally select among the scores of Part D plans available now and that reducing the number of available plans would increase welfare.) The Medicare supplement (Medigap) market is a good model of competition within standardization. Making products more similar encourages competition. Allowing them to vary along a small number of dimensions helps consumers make sensible comparisons consistent with individual preference. Isn’t that the point? (To my understanding, Rep. Ryan’s proposal doesn’t call for the establishment of standardized plans.)
    • Provides access to utilization data for research. Today, Medicare Advantage plans do not provide the same level of utilization data that is available for traditional Medicare. This limits our ability to understand how private plans work, what they provide, and what the consequences are for health outcomes. If taxpayers are funding them, or successor voucher-based plans, all utilization data paid for with such funds should be available for research. This would allow qualified research organizations to independently verify the merits of or discover the problems with a market-based insurance system for Medicare beneficiaries. If we’re to move away from FFS Medicare and lose the research data associated with it, I absolutely insist on a greater level of access to private plan data than exists today. This is a serious issue that gets very little attention, despite my efforts.
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    • Dr. Frakt,

      I am curious. Are there any past models the government introduced that is similar to Ryan’s market based plans?

      I try to be a pragmatist when it comes to moving government ideas into reality. My concern with this talk of “market competition” is that it is all theoretical and will be very hard to implement. It would seem to me that simple is better, especially in healthcare.

      The government is good at developing ideas but horrible at innovation