• Two issues at the heart of premium support

    The following gets right to the heart of two issues relevant to Medicare premium support: (1) Can Medicare beneficiaries assess the quality and value of health plans? (2) Can a more competitive Medicare survive selection effects?

    Many policy analysts believe that promoting a competitive strategy is an effective mechanism to contain system costs and promote quality of care. […] A keystone of that strategy is the assumption that “consumers” can make informed choices based on the costs and quality of competing health plans. Furthermore, many analysts believe that the competitive strategy will fail if selection effects are large. Selection bias occurs when individuals with particular characteristics (i.e. healthier people) enroll in certain health plans while individuals with other characteristics (i.e. sicker people) enroll in other health plans. In the extreme, selection problems can cause insurance markets to collapse. […]

    The fundamental difference between managed care plans and traditional FFS indemnity plans is that the former places restrictions on the choice of provider and the process of care. Hence, health plan choice is no longer simply a matter of selecting a system for financing medical care, but instead now involves an a priori decision of choosing a set of providers and system for delivering care. Simply put, in a managed care environment, the quality of providers and characteristics of the delivery system are important at the time of health plan choice.

    Though extremely relevant today, those words were published 15 years ago in “Consumer Health Plan Choice: Current Knowledge and Future Directions,” by Dennis Scanlon, Michael Chernew, and Judith Lave (Annual Review of Public Health, 1997).

    The debate over premium support tends to focus on costs, largely ignoring the two key issues this passage raises. Assisting consumers in making informed choices and including safeguards in case risk adjustment is insufficient are among the many items required for a complete premium support proposal, one that takes seriously the concerns of opponents while furthering the main goals of advocates. Addressing these issues is not impossible, but we tend to see them somewhat condescendingly minimized by those advocates and somewhat hysterically over-hyped by those opponents. Neither is helpful if you’re after good policy, though may be helpful if you’re trying to win a political game.

    Both sides may hate me for the last two sentences, but I’m the one offering ideas to bridge the divide. Being attacked by both sides is evidence you’re in the middle, isn’t it? And, more often than not, that’s where the truth lies. For all that, I have no unique claim to wisdom. I am just as fallible as you are. I’m not running for office and have very little power over anything outside this blog and the few square feet of my home not overrun by my kids’ playthings. But, I welcome an evidence-based debate. Go on and have it in the comments.

    @afrakt

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    • Is there any literature available on the question of what kind of differences could appear in “actuarially identical” plans competing in a premium support marketplace? I’m reading your post on Medicare beneficiaries selecting plans on quality and coverage, and I’m wondering if a plan could, e.g., construct something that looks great from an advertisement (competitive prescription and doctor’s office copays) but had massive hospitalization costs built into the back end.