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.

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