Bring Market Prices to Medicare

"One of the perennial debates about Medicare is how much we should support the participation of private plans, and how much we should make it a public-only programme. It started as just a public health insurance programme. All the bills were paid directly by the federal government, it was a uniform national benefit and there was no choice: You’re on Medicare, everyone is in the same programme, it’s one big risk pool. Then, starting in the 1970s but increasingly in the late 90s and 2000s, private plans have participated. You can enroll in what is now called Medicare Advantage Plan, through which you get all your Medicare benefits and maybe more. You pay them a premium, they get a subsidy from the government and it’s like a private plan arm of Medicare. Also, the Medicare prescription drug programme, which includes drug-only private insurance, is entirely through private plans. Medicare does not have a public prescription drug programme. Every year in Congress, and also elsewhere, we debate: How much should these private plans be subsidised? Is it a good deal? Do they save money? Are they treating beneficiaries well? Are they just cream-skimming, ie choosing the healthiest beneficiaries and making a lot of profit off taxpayers? Conversely, is traditional Medicare – the public option – serving beneficiaries well? Is it slow to innovate? Is it inflexible? Is it wasting money? Is it not managing care well? One approach that would resolve the question of how much we should pay these private plans is to have them compete, along with traditional Medicare, for the rate of subsidy that they’re given. This kind of competition is akin to the sort that each of us would put a contractor through if we were remodeling our kitchen or having our house repainted. You would solicit bids from qualified painters or construction companies, and you would weigh the price of the bids against quality. You would probably ultimately pick a bid based largely on price. Medicare Advantage and traditional Medicare could do the same, but they don’t. You could have these plans compete, bid for how much of a subsidy they would need to provide the Medicare benefit, and then Medicare would say, “OK, we’re going to pick the lowest subsidy rate and give all plans that same amount. They can all participate, but if beneficiaries want to choose a more expensive plan then they have to pay the difference.” That’s what this book is about. It gives a lot of detail on Medicare pertaining to some of the things that we debate regularly. It gets into questions like: What really is the Medicare benefit? What is the social contract? Does the Medicare benefit have to include a public option that’s available to everyone at the same price? Or can it be a different price in different areas, depending on how plans bid and compete? Do plans have to provide access to all willing providers or can they establish provider networks, as private plans do and traditional Medicare doesn’t? It’s a political battle. Plans don’t want to compete. They’re very happy with the relatively lavish payments they receive now. No, it’s not the place to go on Medicare generally. For that, John Oberlander’s The Political Life of Medicare is a good book. That would be the place to go on the history of Medicare and why it was shaped the way it was – the political bargaining leading up to it, and its history since. But it was published in 2003, so it doesn’t get into the Prescription Drug Programme which was passed in 2003 and enacted in 2006."