Why vouchers and Medicare don’t mix

My latest Kaiser Health News column is out today. It explains why the current Medicare voucher program (aka, Medicare Advantage) hasn’t helped save the program money, with obvious implications for Paul Ryan’s proposal. The reasons are probably not what you think. Here’s a taste:

[T]oday … monthly payments to Advantage plans are, on average, 13 percent above fee-for-service Medicare costs. … Originally, private Medicare plans were paid 95 percent of per beneficiary fee-for-service costs. …

Then Congress began to ratchet up payments … Ironically, traditional Medicare payment regulatory reforms–like the prospective payment of hospitals and home health agencies–have been more successful (even if not anywhere near successful enough) in mollifying the rate of growth in the program’s costs. …

Why is the market-based Advantage voucher system not helping to control Medicare costs? The answer is that health care cost control is tough, technically and politically. Provider groups typically resist it. When it pertains to Medicare, beneficiaries resist it too. By adding another private-sector layer to the program–health insurers–the Advantage program invites a third source of political pressure. Rent-seeking by providers and insurers, as well as the power of the beneficiary constituency, align in their encouragement of higher Advantage payments. Congress, apparently, is willing to yield to that encouragement.

For the rest, hop over to KHN.

Related to this, is my prior column on competitive bidding in the Medicare Advantage program.

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