A Better Way to Slow Medicare

A report that will be released this week by the American Enterprise Institute finds that competitive bidding can save more money than the President’s budget proposals without endangering the care of millions of seniors. The authors—Roger Feldman of the University of Minnesota, Robert Coulam of Simmons College, and Bryan Dowd of the University of Minnesota—estimate that competitive bidding that includes all Medicare plans could save $339 billion over a decade. That is the approach taken by Sen. Ron Wyden (D-Ore.) and Rep. Paul Ryan (R-Wis.) in their bipartisan Medicare reform proposal.

Better yet, these savings reflect what health plans already say they can do. They are based on the actual bids of Medicare Advantage plans and the actual cost of traditional Medicare to provide full benefits without scrimping on health services.

Full article by Joseph Antos. AEI study here.

Comments (4)

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  1. Brian says:

    Another small, but important piece of the solution puzzle for saving Medicare in the long-run.

  2. Devon Herrick says:

    Selective contracting and competitive bidding is a really good idea. Furthermore, Medicare could save even more if it adopted an algorithm that detected fraudulent claims before they are paid, rather than chase fraud after the fact. Finally, Congress needs to give Medicare the ability to fire suppliers and providers at will without having to fight an administrative battle. According to work by Alain Enthoven, published by the NCPA a few years ago, the power to say ”no!” and deny business to a supplier is the only leverage the government has to negotiate better deals. Moreover, it’s a good way to discourage fraud from known scammers (looking for ways to scam Medicare every chance they get). Scamming Medicaid should not be an entitlement for crooked providers and fraudulent medical equipment suppliers.

  3. Ken says:

    If true, what are we waiting for?

  4. John R. Graham says:

    It is a great study and certainly would be a big step forward. Neertheless, no proposal is perfect and there are are a few consequences of which we should be aware:

    First, the bids would be for a standard health plan (or in Obamacare vocabulary, “essential benefits package”). Who decides what’s covered? Lobbying on this issue imposes a deadweight loss. And not all patients have the same needs!

    Second, the lobbying would be partially driven by the insurers’ interest to cover things like gym memberships. Medicare Advantage’s risk adjustment is not perfect, and we would continue to observe risk selection under competitive bidding.

    Third, the bids would be for one-year contracts. I’ve never understood why we think that the period of time it takes for the earch to revolve around the sun is relevent to health coverage. It is unlikely that the chronically ill will find MA plans optimized to their needs in such a system. Contracts need to be longer and the rist adjustment payments price as proposed by Professor John Cochrane’s “health-status insurance.”

    Of course, the status quo has the same problems. So, the proposal by the AEI scholars is an improvement.