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Deforming Medicare into a Competitive Bidding System (part 2)

For lambert, who asks for a takedown of this JAMA article, Potential Consequences of Reforming Medicare Into a Competitive Bidding System.

When I wrote part 1, I hadn't read the entire article, since it was behind a paywall. Lucky for you, lambert has provided a link to the article itself, so now you get to read a second blog post on this stuff!

It's two-page "viewpoint," an op-ed piece, really, rather than an in-depth scholarly article, and half of the second page is taken up by a (not terribly useful) table, a list of (a few) references, and in small, very dense print, a huge list of the authors' possible conflicts of interest, but it nonetheless covers some important territory.

Skipping to the very last paragraph, first:

Premium support, based on competitive bidding, may offer a fiscal solution if ACA reforms fail, but at the cost of making Medicare beneficiaries responsible for solving Medicare’s fiscal crisis. Success of the ACA can make premium support less risky by lowering traditional Medicare costs and helping to monitor and improve quality in private plans. Without ACA improvements, beneficiaries must pay more for traditional Medicare or join a private plan. Given the current fiscal pressures, this may be acceptable, but it is a major shift from traditional Medicare that may have deleterious consequences.

Now there's a prime example of burying the lede in the last clause of the last sentence on the last page. The authors are correct that vouchers premium support is a "major shift from traditional Medicare" in that killing Medicare as we know it is a major shift. And we can probably rewrite that "may have deleterious consequences" too, given that just a couple of sentences earlier, the authors acknowledge that premium support is going to "make Medicare beneficiaries responsible for solving Medicare's fiscal crisis."

The whole fiscal crisis thingy is a bunch of baloney since Congress can decide, any time it wants, to transfer any amount of money it wants from the general fund to the Medicare trust funds and make the problem go away entirely. Also, we know from MMT that the United States government can NOT "run out of money."

There are good reasons for designing a national budget and then sticking to it as closely as possible, and it's not necessarily a bad thing to pay for social insurance programs by using "trust funds" that are really just an accounting fiction if you're a government that can print its own money, but it's not like God handed down some stone tablets to Kathleen Sebelius, decreeing some incontrovertible Laws That Must Be Followed or anything.

So, important point #1 is that Medicare does not have a real fiscal crisis. There are some rich and greedy and sociopathic vultures who do not want you to have free, or even affordable, medical care and they have created a fake fiscal crisis to (a) take more money from you, and (b) keep comprehensive medical care out of your reach.

There are also any number of toadies who are willing to support the above-mentioned vultures in their quest, including policy wonks like Cutler and Chernew and the various newly-minted PhDs they can groom to follow in their footsteps.

But enough of Congress- and author-bashing, onward to deconstructing the article. It's short enough that we can almost take it apart paragraph by paragraph. Here's the beginning paragraph, a brief (and accurate) description of premium support:

THE IDEA OF A PREMIUM SUPPORT (OR VOUCHER) SYSTEM for Medicare has generated substantial debate. Under premium support, Medicare beneficiaries would choose from health plans that compete in a market-based bidding system. In some models, traditional Medicare is abandoned entirely in favor of private health plans. In other models such as the Ryan-Wyden plan, traditional Medicare becomes one option among many.

Next, a brief (and accurate) overview of the pros and cons:

Proponents of premium support cite 2 potential strengths. First, competition may lower health care spending. Second, by pegging the Medicare contribution to one of the lower cost plans and limiting the increase in the government’s contribution over time, public spending on Medicare will slow. Critics state that bidding essentially shifts costs to beneficiaries by increasing their required premiums.

Ha. From The Department of The Obvious: if Congress decides, by whatever means, to "limit the increase in the government’s contribution over time," then yes, "public spending on Medicare will slow."

Are the critics of premium support correct in saying that premium support (vouchers) will shift costs to beneficiaries by raising their premiums? Most likely. In addition to turning Medicare into a peeing alpaca PPACA-like insurance exchange, Congress could also follow the lead of the state of Maryland, engaging in comprehensive government-imposed price controls. This would slow the growth of costs for everybody, Medicare and insurance companies and patients too, but there's zero evidence that that's going to happen, so yes, as the years go by, if old people want to continue receiving the kind of medical care they've had in the past, they're going to have to pay more for it.

In part 1, I originally wrote, as one of my subheadings: Medicare Advantage (private insurance) already uses competitive bidding and it's holding down spending. A few hours later (after reading the next paragraph) I went back and changed it to: Medicare Advantage (private insurance) already uses competitive bidding [oops, not quite correct; more later] and it's holding down spending. The authors' description of competitive bidding in Medicare Advantage:

Competitive bidding is not new to Medicare. The Medicare Advantage(MA) program has used bidding to determine plan payments since 2006. In MA, plans submit a price (bid) they are willing to accept to insure a beneficiary. Payment is determined by comparing the bid with a benchmark payment rate set by Medicare (published annually online), based on the counties the plan serves. If the bid exceeds the benchmark, Medicare pays the plan the benchmark rate and the plan must collect the difference by charging a premium to enrollees. If the bid undercuts the benchmark, the plan is paid its bid plus 75% of the difference (a rebate), which it must return to enrollees via extra benefits or lower premiums. Currently, more than 90% of MA plans offer some kind of rebate to attract enrollees.

That's not competitive bidding, that's rigged bidding with a thin veneer of walnut burl glued onto it.

In the next paragraph the authors (very) briefly review the competitive bidding numbers from 2006-2009. They choose some numbers from 2009, presumably because it's the most recent year for which we have data, and plug those numbers into their model of the Ryan-Wyden Plan, presumably because it's the bipartisan way to kill Medicare as we know it, and conclude this:

Since traditional Medicare is simply another plan option under the Ryan-Wyden plan, a beneficiary in 2009 would have paid an average of $64 per month (9% of $717) in additional premiums to stay in traditional Medicare.

So their conclusion, for purposes of the next part of their discussion, is that private Medicare Advantage insurance is 9% cheaper than traditional Medicare.

What? Privatization is cheaper??? How can they possibly explain this??????

Here's how (I'm going to dissect this one sentence by sentence):

Private plans can cost less than traditional Medicare because: (1) they may use medical resources more efficiently; (2) they may enroll healthier patients relative to the risk adjusted payment; or (3) their negotiated prices may not fully reflect the costs of indirect medical education or payments for disadvantaged hospitals, which traditional Medicare explicitly pays.

A brief and cogent listing of the possible reasons. No quibble from me.

The magnitudes of efficiency, selection, and avoided add-on payments are unclear;

Translation: We don't know how much each of these 3 possible reasons may be contributing to the difference between the cost of traditional Medicare and the cost of Medicare Advantage.

debate over whether add-on payments should be included in the traditional Medicare amount for bidding purposes is ongoing.

And that's all they have to say about reason (3), but just what are add-on payments anyway, and why would anyone want to avoid them?

You can get your heart attack treated at Hospital A or you can get your heart attack treated at Hospital B, but if Hospital B is a teaching hospital, then traditional Medicare will pay them more, even if you get the very same treatment that you would at Hospital A. Why? Because it's important to always be training new doctors and one of the ways that we pay for this is through traditional Medicare.

Similarly, you can get your broken hip treated at Hospital X or you can get your broken hip treated at Hospital Y, but if Hospital X is a "disadvantaged" hospital (one where a lot of the patients don't or can't pay their bills), then traditional Medicare will pay them more, even if you get the very same treatment that you would at Hospital Y. Why? Because it's important to keep hospitals operating and somebody's got to pay the bills. One of the ways we do this is through traditional Medicare.

I can't tell if the authors are saying we should keep paying for all of this out of traditional Medicare but not make private Medicare Advantage pay for any of it (vampire squids gotta eat too, y'know!) or if they're suggesting we should find some totally different way of paying for GME and DSH.

To the extent that the 9% cost advantage reflects efficiency, it suggests there are better ways to provide the traditional Medicare benefit. Indeed, if plans are bidding above their cost of insuring beneficiaries, the 9% gap may underestimate the full efficiency gain.

This is reason (1), private plans are just plain more efficient than traditional Medicare. The authors are also suggesting here that 9% is a conservative estimate and that private plans might really be even more efficient (and cheaper) than that.

Wait... What happened to reason (2), private plans may be enrolling healthier patients? Ha ha. Except for that one brief mention, the authors totally ignore this possibility. Totally.

Fortunately, some of the policy wonks at PNHP have taken a stab at quantifying how much Medicare is overpaying the private plans for cherry-picking the healthiest seniors. And not only that, but they wade into the weed$ on some of the other ways that private plans are gaming the system.

And with that, this post is going to spill over into part 3, later, because it's now way past my bedtime.

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Submitted by lambert on

I should give context here -- In FaceBorg, I got that study thrown at my by a right winger who hangs out at the same pro-Obama propaganda thread I do and I didn't have a response. FB is like Daily Kos in 2008, except with members of the conservative tribe as well as Obama fans. It's a good way to sharpen the talking points.... So now I can cite to this as the best study and take it apart.

Also, there's really no reason not to run everything like ObamaCare. Put the government program in a marketplace and add vouchers to the mix. Rather like charters. Market state stuff!

It's like electing Obama enabled all sides to double down on just about every bad policy on offer.

Submitted by hipparchia on

i thought your request might have been occasioned by another online encounter somewhere...

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Submitted by DCblogger on

I guess it depends upon your faceborg friends, mine consists of wedding and baby pictures, dachshunds, and pictures of what my friends fixed for dinner, with a little xml mixed in.