Rep. Hensarling offers competitive bidding

Today, Rep. Hensarling, the GOP co-chair of the supercommittee, offered the Domenici-Rivlin plan for Medicare as a way forward in negotiations with Democrats. John Parkinson, and many others, quote Rep. Hensarling,

[H]ow about a bipartisan plan?’ We would be willing to negotiate around the Rivlin-Domenici Medicare plan. It’s not our version, it’s a bipartisan version.

Yes, it is bipartisan, coming from the Bipartisan Policy Center. But what is that plan, exactly? Why, it’s a variant of competitive bidding, including the following features:

  • Private plans are permitted to participate, so long as they offer at least the same benefit as traditional Medicare (just as they do today).
  • Traditional Medicare, the public option, remains part of the program.
  • All plans, private and public, submit bids to the government.
  • The second cheapest bid sets the subsidy (as opposed to the administrative formula that does so today).
  • Thus, at least two plans in every market are available at an affordable price (caveat below), though we can’t say which plans those would be. This affords beneficiaries some protection from rising health care costs (don’t worry, I know the caveat … it’s coming).
  • At the same time, taxpayers don’t pay more than necessary to provide the Medicare benefit, offering them some protection too.
  • The caveat: if the rate of growth of the program exceeds GDP + 1%, the subsidy will be reduced to a percentage of the premium of the second cheapest plan to bring growth in line with GDP + 1%. One hopes this is not binding, but that cannot be guaranteed. This cap is included to ensure a favorable CBO score, in light of the challenge of scoring competitive bidding.
Additional details on the Domenici-Rivlin plan is here (pdf). Other important notes:
  • Medicare Part D, the ACA exchanges, and the Federal Employees Health Benefits Plan, all use some variant of competitive bidding.
  • It’s relatively standard in government procurement. Competitive bidding, though of a different variant than Domenici-Rivlin, is how many people purchase customized services for their home (renovations, painting, etc.).
  • All Medicare plans (public and private) are subsidized today.
  • All Medicare Advantage Plans must offer at least the Medicare benefit today.
  • Something must be done to control Medicare costs and the ACA, though it includes some worthy ideas, is not enough.
  • Some have concerns about selection (favorable for private plans, adverse for traditional Medicare), though those could be politically convenient objections. The effects of selection can be managed, at least somewhat. I wouldn’t go so far as to say selection is not a legitimate concern. I would only say it isn’t self evident to me that it should disqualify competitive bidding from consideration. Selection is an issue across the public-private divide in Medicare today, and it affects traditional Medicare’s and taxpayer’s costs.
  • If one believes that a public plan can offer the Medicare benefit at a lower price than private plans (here’s the record on that), one might think competitive bidding would favor traditional Medicare.
  • If one believes that at least two private plans can offer the Medicare benefit at a lower price than traditional Medicare, one might think bidding would favor private plans (some evidence in that direction).
  • Likely which can bid lower varies by market. Over time, it depends on how plans are able to innovate, which, in part, depends on how traditional Medicare is permitted to innovate. Management by Congress puts it at a disadvantage.
I encourage everyone to think through competitive bidding, even if you’re pretty sure you hate the idea. The reason is that it at least forces you to consider just about every politically important aspect of the Medicare benefit. If you haven’t followed every link in this post, those are good places to start. I like competitive bidding as a concept for this pedagogical reason alone.
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