Today, Fox News spoke to Sen. Chuck Grassley’s (R-IA) about his recent spat with OMB Director Peter Orszag over the administration’s proposal to eliminate the government’s subsidy to insurance plans participating in the Medicare Advantage program:
This administration is proposing to cut that [Medicare Advantage]. I’m all for competitive bidding if it doesn’t cut services for rural America.
As Orszag articulated during yesterday’s hearing, “We’re all paying a $1.30 in order to deliver a dollar to a subset 20% of Medicare beneficiaries. I don’t think that’s competition, I think that’s an unwarranted subsidy.”
In its health care budget, the administration would replaces the 14 percent overpayment to Medicare Advantage and with a competitive bidding process. Insurers in each geographical area would bid to provide coverage, the government would average all of the bids, weigh that by the enrollment in the previous year, and pay out that amount.
Grassley is concerned that the elimination of the Medicare Advantage subsidy would encourage private plans to pull-out of rural areas and lead his Iowan constituents to lose their benefits. But Grassley’s objection, raises an important question: why should the federal government continue over-paying private insurers, if that same level of care could be provided at a cheaper rate?
The competitive bidding process is meant to weed out bloated or ineffective providers and hold down health care spending. Some of Grassley’s constituents might have to switch plans but only if their plan chooses not to bid or cannot provide services at the the market-driven rate. Even then, Iowan beneficiaries wouldn’t lose their Medicare benefits (they will continue to receive Medicare, albeit with some disruption as they move back to fee-for-service or find another MA plan), just the extra benefits that some Medicare Advantage plans provide.
Ultimately, Obama’s proposal does not eliminate Medicare Advantage. Rather, it opens up the process to the very same kind of market forces that conservatives claim reduces costs while providing the very best in care quality.