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Bring Market Prices to Medicare

December 16, 2011 in Books, Health Insurance, Managed Care, Medicare, Medicare Advantage | 3 comments

Medicare is a government-run insurance program.  Can policy changes be made to add competition to Medicare, maintain quality and reduce cost?  A book titled Bring Market Prices to Medicare argues that it can through a competitive bidding process. This book makes a number of sensible arguments which I review today.

The main proposal of the book is a competitive bidding process for all Medicare plans. Currently, there is a form of competitive bidding only for Medicare Advantage (MA) managed care plans. The authors also argues for competitive bidding for fee-for-service (FFS) Medicare (i.e., Parts A and B).  There is already a competitive bidding process for Medicare’s prescription drug program (Part D) which has worked well.

One of the main advantages of Medicare FFS is that beneficiaries do not need a referral for any services and are not limited to certain provider networks. However, Medicare beneficiaries do not pay for these added benefits. In addition, even if HMOs are more efficient than Medicare FFS, Medicare FFS beneficiaries still pay the same Part B premiums.

The authors want beneficiaries to face the true price differentials between the lowest cost plans and less efficient plans., regardless if the plan is Medicare FFS or an MA plan. Thus, beneficiaries would be responsible for any premium differences due to choosing a more expensive plan.

Currently, MA plans receive a variant of the average bid in their service area. The authors propose that Medicare would only pay for the lowest cost plan. This proposal would in essence be a transfer from plans and beneficiaries (who would have to pay the cost differential between the plan they choose and the lowest cost plan) to the government. Given the fiscal hole the federal government is facing, this is a good idea.

Authors also propose to eliminate the 25% tax on premiums. According to MedPAC, “Plans that bid below the benchmark also receive payment from Medicare in the form of a “rebate.” The law defines the rebate as 75 percent of the difference between the plan’s actual bid (not standardized) and its case mix-adjusted benchmark. The plan must then return the rebate to its enrollees in the form of supplemental benefits or lower premiums” The rebate structure gives plans a disincentive from lowering their bids since they only recover a share of the cost decreases.

Another issue focuses on regional adjustments. Living in New York is expensive and health care is more expensive in New York than in rural Mississippi. However, should Medicare subsidize New Yorkers because their health care is more expensive. The authors argue no, but poor individuals in high cost areas will be adversely affected by this policy choice.

A major issue is controlling quality. Plans could create low cost plans by providing low-quality care or failing to provide mandated services. Thus, CMS will need to regulate the plans. Plans with quality levels below a specific level would be barred from enrolling individuals or the government could force beneficiaries to pay additional premiums to enroll in these low quality plans. Public reporting of plan quality is also needed.

Strategic bidding is also a problem. Plans could collude to raise the bid price. However, by having Medicare FFS as an option will cap the amount colluding firms could increase prices. Further, a small firm could bid a very low amount and set the market. Medicare could set the benchmark at the lowest cost plan which meets a minimum size requirement.

Source:

Another Review of the Book:

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California’s Current Health Insurance Market

January 6, 2010 in Health Insurance, HSA, Managed Care | No comments

The California Healthcare Foundation looks at the latest health insurance trends in the nation’s most populous state.

  • In California, like in many states, there is a blurring line between what defines an HMO compared to other forms of health insurance.  Almost all insurance carriers now offer “a broad array of products, some of which do not conform to traditional product designs.”
  • While HMO enrollment has declined in other states recently, HMO enrollment has been steady in California.  Over 60% of commercial enrollees have either an HMO or POS plan.
  • California has 2 health insurance regulatory bodies: the Department of Managed Heath Care (DMHC) and the California Deparment of Insurance (CDI).  DMHC is responsible for regulating all HMO plans and some PPO plans, while CDI regulates other PPO plans.
  • Consumer Directed Health Plans are gaining ground.  Most large employer offer CDHPs as one choice among many health insurance options.  On the other hand, many small businesses are replacing traditional health insurance products with CDHPs as the employees only option.
  • Anthem, Aetna and Cigna have introduced 3 tiers of network physicians.  There is a high-performance tier (based on physician cost and quality), a second in-network tier, and an out-of-network tier.
  • Some employers have cut cost by giving employees a narrow network plan, which gives them access only to a narrow set of physicians out of the carrier’s entire network.  For instance, when Scripps Health System in San Diego started paying doctors via fee-for-service, many plays excluded Scripps doctors from many benefit packages.  Other plans are attempting to remove the UCSD Medical Center physicians.

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Medicare Advantage funding to be cut

April 4, 2008 in Managed Care, Medicaid/Medicare | Permalink

David Whelan chronicles the rise (and possibly future fall) of Medicare Advantage programs in his article “Unfilled Prescription” in Forbes.

Earlier laws privatizing Medicare, starting with a pilot program in 1985, were written to give insurance companies only 95% of the money otherwise spent per Medicare member. The insurers were supposed to figure out how to make up the difference. It was a blunt way to save the Treasury money, but few companies stepped up…

The 2003 law hiked the payments to lure more insurers into the market. In some counties minimum payments to these plans reached as much as 128% of the amount Medicare traditionally spends per patient. Insurers rushed in, and costs soared. In the most remunerative counties, two times as many old people are enrolled in Medicare Advantage as the national average. As a result, taxpayers now pay an average of 12% more per private-plan beneficiary, not 5% less.

Whenever we talk about cost we also need to talk about quality.  Are people who opt for Medicare Advantage plans getting higher quality care than in traditional Medicare?  Are they able to see doctors in a more timely manner?  Is care more coordinated?  If this is the case, then the extra costs may be worth the money.

Nevertheless, an economist would guess that Medicare Advantage plans should be cheaper.  Even though the private plans have higher administration and advertising costs, they likely are more efficient than the government plans.  Further, one would anticipate that healthier seniors would choose the Medicare Advantage plans and sicker senior would be more likely to choose traditional Medicare.  This selection problem should make Medicare Advantage cheaper.

I agree that the federal government should not pay more money for private plans than it does for traditional Medicare.  It should reimburse the plans the same (or less if there is adverse selection) as it costs for the government to administer traditional Medicare and if firms want to increase the price, than seniors can pay the difference.  If seniors do not want to pay the difference, they can always opt for traditional Medicare.

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