• What competition in Medicare looks like

    In a post about how Rep. Ryan’s Medicare voucher plan would not control costs by harnessing the market but would, rather, shift them, Ezra Klein explains what real market competition in Medicare would look like.

    A plan that brought competition to Medicare would work something like this: Seniors would get a voucher that grew either at the rate of health-care inflation or somewhere near to it. They could then pick from a range of options that Medicare had certified as sufficiently comprehensive and free of scams. If they chose a more expensive plan, they’d have to pay more out of pocket. If they chose a cheaper plan, they’d get the savings back in the form of a tax refund. Thus, they’d have a strong incentive to choose cheaper plans. That’d be the market at work, and it’s something we’re already trying in the form of Medicare Advantage, though it hasn’t worked very well.

    Close, but not quite. This isn’t how harnessing the market works, not fully. The reason is revealed by Medicare Advantage. It all comes down to how voucher levels are set. Is it a market based process or an administrative one? In Medicare Advantage and in Rep. Ryan’s plan it is the latter. In Part D, the ACA’s exchanges, and under the competitive bidding ideas of Coulam, Feldman, and Dowd it is the former.

    More in my many posts on competitive bidding. This one is probably the most on point.

    • I work as an Elderinfo volunteer, helping people figure out Medicare A and B, Medicare D, and medigap choices among other things. It’s been my experience that it’s very hard for most people to figure out what’s the best choice, in terms of cost and coverage. It just isn’t as simple as saying pick the cheapest one and get a refund. The refund won’t cover your costs if you suddenly find yourself suffering a major medical event. People who are 65 and older tend to over insure, simply because they can’t predict their future health and it really isn’t easy to calculate the risks.

      Part of the problem is that medigap, Medicare Advantage, and Medicare D are private plans. Yes, there is basic ‘standard’ coverage that every plan approved by CMS has to supply, but the details beyond that standard coverage are not easily discovered. Yet those details are what supposedly makes the plans competitive and/or more attractive to the potential buyer.

      To me, it seems misguided to think that an exchange will fix any of these problems, let alone curtail the costs of medical coverage. I think the kneejerk rejection of a nationalized health care system on the part of people like Brooks and Ryan is keeping us from looking at the full range of options.

    • Your post on competitive bidding seems to ignore the fact that whatever system we adopt, Congress can change it. If competitively priced vouchers don’t provide enough for seniors, Congress can increase the amount.

      The only question is how hard it is for Congress to change something, but at the end of the day, the gov’t can change the terms of any gov’t program.

    • Insurers are less than enthusiastic about covering people who are chronically ill or who have developed serious illness. Ryan says nothing about insurability, vague on affordability, and is silent on the currently uninsured.

      Regarding competitive bidding, suppose you gave a bidding process and nobody came?

    • Cycledoc, those comments are hard to make sense of. Medicare already risk adjusts it’s premiums and health plans are not avoiding unhealthy seniors.

      As for nobody showing up, that depends on whether health plans suddenly find themselves unable to insure profitably. What in current or proposes legislation makes you think that will happen? Note that even in MA where margins are squeezed plans are still participating.

      You might get a move from for-profits who won’t play for 1.5% margin to non-profits who will.

    • The current arrangement is that Medicare risk adjusts their payments to insurers to induce their coverage of those at higher risk.

      I’ve not seen any indication that the republican plan considers this desirable and mandatory in their proposal. They have been silent on guaranteeing insurability and on assuring reasonable premiums for those at greater risk.

      Insurers have been brutal to those in the under 65 age range in the individual market. Their pricing, in this open competitive market is designed to decrease their costs, deny coverage and is not defendable in the context of a medicare replacement.

      To work the system will need some form of community not individual rating and a much greater government contribution than initially proposed to assure coverage.

      The plan also ignores the inflationary pressure in health stemming from the unlimited expectations of patients, providers and suppliers. It’s more than doubled in the past ten years and in the 30 years has increased ten fold.