The fight to rein in exploding Medicare spending through exposure to market forces took two giant steps back this week. First, the House voted early this week to set aside regulations that would have allowed the Department of Health and Human Services (HHS) to buy medical equipment through competitive bidding. Then yesterday, the House voted to raid one of the most popular market-based health care initiatives: Medicare Advantage.
Since its creation in 2003, Medicare Advantage has helped more than 9 million Medicare recipients enroll in private health maintenance organizations (HMOs), local and regional preferred provider organizations (PPOs), and private fee-for-service (PFFS) health plans. The health plans cover all of traditional Medicare’s benefits and much more, including coordinated care and care-management programs for enrollees with chronic conditions as well as additional hospitalization and skilled nursing facility stays. Seniors can choose between plans with higher premiums and lower cost-sharing or those with lower premiums and higher cost-sharing.
According to the Centers for Medicare and Medicaid Services (CMS), Medicare Advantage enrollees receive, on average, an additional monthly value of $96 in added medical services compared to traditional Medicare recipients. Critics of Medicare Advantage point to Congressional Budget Office (CBO) data that shows Medicare payments for Medicare Advantage enrollees are 12% higher than traditional Medicare recipients, but this study ignores the extra health care Medicare Advantage enrollees are receiving. In addition, studies show that increased enrollment in Medicare Advantage actually decreases government spending in the federal government’s other major health care program, Medicaid.
But the CBO data comparing traditional Medicare payments and Medicare Advantage is flawed for a more fundamental reason. Medicare reimbursement rates are set by a purely political process that has no relation to market realities. The good government central planner types have tried to ween Medicare into more “scientific” fee schedules, but the same vote that ripped billions from the Medicare Advantage program gave those billions to doctors whose payments were set to be cut by those efforts.
There are clearly problems with the payment methods for Medicare Advantage plans — mostly problems that stem from basing the methods on the flawed payment system of traditional Medicare. Medicare Advantage has been a success, but it is far short of comprehensive Medicare reform. Members of Congress who wish to see a fair and equitable Medicare payment system can achieve that most easily through a new system of premium support in which all plans could compete on a level playing field.
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