Another Look At Premium Support And Competitive Bidding In Medicare

Austin Frakt suggests that some progressives — including this blog — may have been too quick to dismiss the Rivlin/Domenici “premium support” proposal that Republicans on the super committee are now advancing as a viable compromise to the Medicare privatization plan contained in the GOP budget. Rivlin/Domenici would provide seniors with “premium support” vouchers that they could spend on traditional fee-for-service Medicare or a private health insurance plan that would be required to offer Medicare benefits. Medicare and private health insurers would compete for beneficiaries by offering bids for a defined benefit, which the government would then convert into a “premium support” based on the second lowest bid in each geographic area. Seniors would enroll in a low-bid plan — whose costs can be fully covered by the premium support — or select a more expensive policy and pay the difference between the bid and the “premium support.”

Some progressives argue that Medicare would lose that competition because healthier beneficiaries would join private plans, causing costs to increase in the traditional fee-for-service program. Frakt disagrees:

With network adequacy in place and prices dropping below private plans to an increasing extent, traditional Medicare may perform well under competitive bidding. Why are so many seeming to lack confidence that the program can compete? After all, look at what’s going on today. Private plans are at a tremendous advantage and have been for many years. They receive per beneficiary subsidies way above the average cost of traditional Medicare. They offer many additional benefits and many plans offer lower premiums and cost sharing relative to traditional Medicare. Still, traditional Medicare retains 75% of the market. Competitive bidding would reduce the overpayments to Medicare Advantage plans, reducing the advantage they have in the market today.

Thus, I think there is a chance traditional Medicare would do just fine under competitive bidding. It might even thrive. This is, admittedly, speculative, and it depends, in part, on what Congress allows the plan to do, which depends on how any competitive bidding statute is written (if ever). The devil, as always, is in the details.

Setting aside the beneficiary cap in Rivlin/Domenici — the premium support grows at GDP plus 1 percent and does not keep up with actual health care spending — I would probably be more enthusiastic about competitive bidding between Medicare and private insurance if it was truly possible to limit adverse selection and both parties competed on an equal playing field (and were required to offer not just the same benefits, but also the same scope of benefits so as to prohibit insurers from dialing up healthy people benefits and dialing down those services that are used by the sick). But I have a sneaking suspicion that insurers and the lawmakers who they work with would oppose this kind of “pure” competitive bidding structure because they’re more interested in privatizing Medicare and lowering federal spending on the program than actually tackling national health care spending. And in that case, this would turn into a cost shift to seniors, rather than a sensible way to reform the program.