Premium support proposal and critique: Proposal Q&A

This post is part of a series. If you haven’t read the prior posts in the series, you really should. The introduction explains what I’m doing and links to all posts to date. Below I answer some questions about the proposal I made yesterday.

Q: Why do you assume that traditional Medicare (TM) cannot enhance the benefits it offers?

A: That is one of the “stylized” constraints of this series, as stated in the introduction. “Stylized” means that it isn’t logically true but historically has been the norm. In particular, TM is very constrained by politics and, as such, is less able to do things that cost more. Where it excels is in innovation around payment system reform, because that reduces (or is scored as reducing) federal expenditure. (More on these points here.) That TM isn’t able to be innovative in the dimension of benefits, especially relative to private plans, is widely accepted among health policy experts. See, for example, this paper by Mark Schlesinger and Jacob Hacker. If there is one recognized health policy expert that disagrees with this, I’d love to hear from him or her.

Q: Would premium support actually save money?

A: Based on Medicare payment policy as it was several years ago, the best estimate we have is that premium support of the type I defined would save 8% of Medicare expenditures. Medicare payment policy has changed since then and private plans are now paid less. Relative to the current, lower level of payment, premium support would still save money, but not as much. Estimates are not yet published. Note that the CBO is unable to score a competitive Medicare program (at least right now), so by their metric, the premium support plan I sketched out would save nothing. Just because CBO would score it as saving nothing doesn’t mean that’s correct. I support additional research to develop sound methods that CBO could use to enhance its work in this area.

Q: Isn’t premium support designed to shift costs to beneficiaries?

A: No. The type of premium support sketched yesterday would not shift costs to beneficiaries for the standard Medicare benefit. All beneficiaries would have access to the standard Medicare benefit at an out-of-pocket cost no higher than any of them would pay under current Medicare plan payment policy. It’s true that beneficiaries wanting additional benefits would have to pay for them, with protections for those for whom doing so would be a financial hardship.

Q: Won’t premium support drive benefits from the system?

A: Unless the minimum standard Medicare benefit is redefined to be more generous, premium support would likely reduce the level of benefits provided by current Medicare Advantage plans. But those plans are overpaid at taxpayer expense, which is what supports those additional benefits. If we feel those benefits are of great value, then the standard Medicare benefit should be adjusted to reflect that, and TM should offer them. If we want plans to provide only benefits that are valued in the market and at a fair, competitive price, we can’t continue to pay them an arbitrary, high, administered payment as we do today.

Q: Won’t premium support crush TM?

A: In principle, that is not at all clear. In a critique later in the series I will explain under what conditions that could happen in practice. Note, however, that TM has many advantages. If one believes that TM provides good access to high quality care at prices lower than private plans, then one should believe TM should out-compete private plans. (More on this here.) Premium support could crush private plans, though that’s not a foregone conclusion either. Fundamentally, though, given how plans would be paid and the constraints under which they would operate, one should ask why one cares which plan type “wins.” What does “winning” mean in this context for beneficiaries? For taxpayers? (Think about it.)

Q: But how can TM really compete against a wide variety of private plans? TM is just one thing and the marketplace of private plans would include considerable variation.

A: This does put TM at a disadvantage. A few things would make the playing field more level, though. First, private plans must offer, and bid on, the same package of benefits as TM. So, with respect to that, they’re not different than TM. Second, though not mentioned in my proposal post, one could imagine TM expanding into more than one plan type, as well as offering enhanced benefits, including drug benefits and catastrophic coverage, in some of its variants. This too would level the playing field across the public-private divide. Note, however, that affording TM that degree of flexibility is inconsistent with its history of political constraint due to its oversight by Congress.

Q: Isn’t this a complicated way to go about reducing payments to private plans?

A: It is. But I would go back to the problem and goals sketched out in the introductory post. The goal isn’t to reduce payments to private plans, per se. The goal is to make efficient use of taxpayer and beneficiary resources while respecting the realities of and constraints that bind Medicare. One thing is clear: if the current administration reduces MA payments – which it is doing – the next one may well increase them. None of those payments will have any direct connection to actual plan costs, as revealed by a competitive bidding system.

Q: If the primary goal is better care at better cost, as it should be, shouldn’t we first and foremost be demanding transparency not only from Medicare, but from private plans and providers?

A: Yes. That’s why I would demand the release (with privacy protections) of all relevant utilization and benefit data so that the program administrators and researchers can police it thoroughly. More on this point later in the series.

Q: Shouldn’t we make sure that, whatever we do, we do not jeopardize our ability to make payment and delivery system reforms?

A: Absolutely. Payment and delivery system reforms should go forward. All plans should be able to decide how the pay providers and incentivize them for higher quality, lower cost care. TM should avail itself of any and all tools to do that (within the political constraints under which it operates). This is its competitive advantage and anyone who cares about good stewardship of taxpayer funds should not want it to give that up. (More here.)

Q: Is premium support defined benefit or defined contribution?

A: Confusion on that is borne from the vagueness of the term “premium support.” In fact, it can be either, depending on how the support levels are set. In the version I sketched out, it’s defined benefit, since support is always adequate to afford the standard Medicare benefit, albeit not necessarily from TM in all markets.

Q: Won’t politics of the debt drive it toward defined contribution?

A: That could happen, as could the erosion of Medicare in many other ways. We all know that Medicare is unsustainable in its current form. Many hope that payment and delivery system reforms will save it. If that’s true, that would hold under the premium support version I sketched out too, since TM would be permitted to implement those reforms. More on this point later in the series.

Q: Isn’t this a heavy political lift?

A: What about Medicare is not? So far, this series has not been a political analysis, but a technical one. I will consider politics later in the series.

Q: If market-advocates think private plans achieve lower costs and public program advocates think Medicare does, why don’t both sides embrace head-to-head competition embodied in this style of premium support?

A: Neither side trusts the other to not stab it in the back when it comes down to the crucial details. But that’s true of every aspect of Medicare, if not nearly every aspect of policy. Because of that, I am not optimistic the style of premium support I described will ever come to fruition. That doesn’t make it a bad idea. In fact, it’s virtues reveal how bad many other ideas for Medicare reform are. (More here and later in the series.)

Q: Can’t we just decide based on what we know which works better, private plans or a public program?

A: It’s just not that simple. Each plan type has advantages. I wrote about this last week. In brief, private plans innovate better in the dimension of benefits, traditional Medicare in the dimension of provider payment reform. Traditional Medicare’s cost controls may be effective, but they can also lead to problems (e.g., some have blamed shortages for Part B-covered drugs on low payments within that arm of the program).


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