“We have hardly heard the last of voucherization”

In the current issue of the Journal of Health Politics, Policy and Law (JHPPL) Jonathan Oberlander reviews the history and literature on Medicare voucher (aka, privatization, premium support, competitive bidding) proposals. He also critiques them, emphasizing ways “voucherization” is misunderstood, replete with limitations and political challenges. Though the voucher movement may be down, it’s not out.

The substantive case for converting Medicare into a defined contribution system and relying on competition to control spending is thus less compelling than its advocates presume. As Uwe Reinhardt (2011) notes, ‘‘The hypothesis that managed competition among private health plans can better control overall spending per Medicare beneficiary than would traditional Medicare lacks empirical support. . . . That hypothesis remains purely a belief.’’ However, policy disputes are often not settled on the merits, and policy choices are often made on faith. A shift in political alignments or a federal budget bargain could bring premium support or its euphemistic equivalent back to the top of the agenda, opening up another Medicare reform debate. Voucher advocates do not speak of vouchers openly anymore, but we have hardly heard the last of voucherization. [Link added.]

I agree with both Reinhardt and Oberlander. Competition, such as we have it in various commercial health insurance markets, hasn’t beaten traditional Medicare on cost control. Nevertheless, voucherization plans for Medicare will be back. I’m not so sure they’ve ever left. (See Paul Ryan.)

Voucherization deserves to be considered and reconsidered, tweaked and reformed, if for no other reason it’s how Medicare Part D and the Affordable Care Act exchanges work. As Oberlander points out (citing me), even Medicare has vouchers today (there exists a choice of subsidized plans), just not ones based on as sound a competitive design as Part D or the ACA’s exchanges.

Why have we adopted sound competitive designs for some Americans and not others? One answer is that competition has become better understood and accepted over time. Part D and the ACA exchanges are far more recent than the establishment of traditional Medicare or the predecessors to the Medicare Advantage program. Do the competitive designs of more recent programs reflect the rise of the economist?

As Oberlander points out, many economists are rather fond of and advocate for the market designs of Part D and the ACA exchanges, myself included. There are reasons to prefer them over more administratively set prices, as exists for non-drug Medicare coverage today. The government has a hard time getting prices right or sticking to whatever it previously thought would be right. And there are advantages to some degree of choice (but not too much).

Markets can do great things, maybe even in health care. But we usually fail to establish good ones. We can do better. And in another excellent paper in the same issue of JHPPLRussell Korobkin points the way. He

proposes a new paradigm for rationalizing health care expenditures called ‘‘relative value health insurance,’’ a product that would enable consumers to purchase health insurance that covers cost-effective treatments but excludes cost-ineffective treatments.

Korobkin’s idea is to establish a market in which plans differentiate themselves by the degree to which they cover technology of low or uncertain value. This idea, finally and explicitly, would bring technology management—the principal challenge to long-term health system efficiency— to the fore in a market. To be sure, traditional Medicare or single payer could also manage technology—without a market—but that would require a different arrangement. It could be done (see NICE), but it’s not the direction health policy appears to be heading (again, see Part D and the ACA).*

I understand why some oppose voucherization. Indeed there are genuinely bad voucher schemes I would oppose. But there are also good ones. A few good examples exist today (not to say they cannot be improved). Building on and extending them in the right ways would be an improvement, in my view. Caveat: Still, engaging in reform is risky, and no health reform is perfect. Your mileage may vary.

Oberlander’s and Korobkin’s papers are both worth your time. Read them, if you have access.

* In light of this, I worry far more about implementation of bad voucher plans than about voucherization in general.


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