Medicare Reform Through The Markets
Luigi Crevoisier writes:
On April 16th 2013, I attended an event at the American Enterprise Institute (AEI) named “Markets, not madness: Medicare reform that works”. The panelists of this event discussed the results of a projection study done by the Congressional Budget Office (CBO), which found that Medicare expenditure is projected to grow to 1.079 trillion dollars by 2023 [1]. The panelists then discussed potential reforms to the working of Medicare to make the program sustainable, including competitive bidding as well as some other politically charged reform proposals.
Roger Feldman, Blue Cross Professor in Health Insurance at the University of Minnesota, argued that competition among health care services, supplied, and equipment offers the only realistic way to find out “the true cost of providing Medicare benefit”. In other words, competitive bidding is one of the solutions for the government to realize the cost of Medicare itself and pay for its actual cost.
Paul Ginsburg of the Center for Studying Health System Change stated that the study from the CBO has reasonable market-based approach to premium support, but points out that there are other studies that have an ideological inclination, making them “politically toxic”. He believes that Medicare does not need premium support at this moment, but Medicare can benefit from market forces to grow competitive and become more sustainable.
James Capretta, AEI visiting fellow and the Ethics and Public Policy Center, stated that Medicare as it is now encourages high spending among patients and physicians caused by the fee-for-service structure of Medicare and the fact that the costs of health services are not being shared among the beneficiaries. These effects seem to be magnified since Medicare’s presence is significant in the health insurance market.
Joseph Antos, AEI scholar and Cornell Alumnus, states that fairness in a Medicare is a problem since people with higher income already pay more towards Medicare through payroll taxes and personal income taxes, and they might end up be paying more after a Medicare reform to achieve “over generational fairness”. Also, he acknowledges the reduction in the growth of Medicare spending but states that the growth is nowhere negative. Furthermore, he explained with a graph that Medicare’s spending cuts on the payments to hospitals and doctors are not sustainable and have failed to address the increase in the cost of the program. He also supports Dr. Capretta saying that seniors do not share the costs of healthcare and incentives overspending of the Medicare.
In my opinion, competitive bidding seems to be a great way to achieve better pricing for Medicare. Although it will not be the sole solution to the consistent growth of health spending, it will give policy-makers realistic and market-based figures to shape a program, whose price might not be sustainable in the long term, education reforms to make them better.
Source
[1] Please look at the table in page 16 to find the projected spending in Medicare.
I think one of the major problems for Medicare in terms of cost control is the recent trend in beneficiaries stacking Medicare fee for service (FFS) with supplementary Medigap insurance plans that cover many of the deductibles and other costs not included in FFS. Roughly 90% of current FFS beneficiaries have some form of Medigap coverage allowing them to pay nothing at the point of service, which directly undermined the intended cost sharing structure of the Medicare program. The result of this insulation from cost is a strong incentive for FFS beneficiaries to overuse medical services. The overuse of services is largely to blame for the CBO’s projections of astronomical growth in Medicare expenditures by 2023. I agree that competitive bidding is the logical solution. Capretta’s paper Medicare FFS shows in a head-to-head competition many Medicare Advantage (MA) plans would be cheaper and more efficient than FFS plans. Evidence from counties with higher proportions of MA plans shows that the average cost of FFS in these areas is far lower than in counties where FFS plans dominate.
Source: Jim Capretta, “The Role of Medicare Fee-for-Service in Inefficient Health Care Delivery” April, 2013