• Yuval Levin’s “Confident Market Solution”

    Despite my deep and wide study of competitive bidding among Medicare plans,* I had not, until moments ago, read Yuval Levin’s late September piece on it, which has been cited laudably by Reihan Salam and Avik Roy. Levin calls the approach the “confident market solution.” “Market” here is not to be confused with the private sector, but, rather refers to the mechanism by which premium support levels are set. Levin’s market includes a public option.

    Though I too am confident in market mechanisms, appropriately shaped by judicious regulation, in many contexts, including for health care insurance, I am agnostic about which type of plan — public or private — performs best in such a market. If the playing field is level, I do not care what type of plan provides the Medicare benefit for the lowest taxpayer cost. Why should I, particularly when both options are available to consumers, albeit at different prices?

    There is much that is familiar to me in Levin’s piece, including ideas I’ve written myself on this blog. There is also a substantial amount dominating the first half I don’t consider essential to the technical understanding of Medicare, its past and future. It is, largely, an interpretation of the political forces that govern the program and debate about it. Though I understand those forces and Levin’s perspective, I neither endorse nor reject his treatment of them. I have no need to. It’s not the purpose of this blog or my interest.

    I recommend you read it for yourself. If so moved, feel free to comment on it below.

    One part caught my attention because it makes a point that is of use to me in understanding why competitive bidding has not been championed by those whose interests it would seem to serve.

    Why, then, did Ryan not propose this [a competitive bidding] form of the premium-support model himself? The reason seems largely to be that the “scoring” conventions of the Congressional Budget Office made it impossible. Put simply, CBO refuses to estimate the effects of competition on prices​—​or indeed the effects of any policy on the behavior of consumers or providers. The agency scores only blunt changes in funding, but does not make economically informed projections about dynamic effects. So while CBO is perfectly happy to offer a (perfectly meaningless) projection of what the unemployment rate will be in the year 2083 (5 percent, by the way), it declines to assume that having insurers compete for customers will result in lower costs than having the government pay a universal preset rate for every medical procedure. The agency has acknowledged that its failure to account for such market effects is, as its director has put it, “a gap in our toolkit,” but it has so far not sought to fill that gap. […]

    [B]ecause CBO does not score market effects, it cannot score a version of premium support based on competitive bidding. Because budget resolutions in the House of Representatives need to be scored by CBO, Ryan had to employ a preset spending level. The Rivlin-Domenici panel also wanted a plan that CBO could score, and so proceeded along the same lines.

    This, by the way, may explain why the latest Domenici-Rivlin proposal includes competitive bidding and a GDP+1% spending growth rate cap. My guess: The former is the plan they want. The latter may only be included for the score they need.

    * Not only have I read their books and papers, I have worked and continue to work with Roger Feldman, Bob Coulam, and Bryan Dowd, who have done some of the pioneering work on competitive bidding.

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