Medicare PPOs' gain is taxpayers' loss
Defective Design: Regional Competition In Medicare An inconsistent approach to regional competition in the Medicare Modernization Act will be very costly for taxpayers.
by Steven D. Pizer, Roger Feldman, and Austin B. Frakt
Health Affairs
August 23, 2005
Abstract:
The Medicare Prescription Drug, Improvement, and Modernization Act (MMA) of 2003 creates several new types of private insurance plans in Medicare. The most familiar of these is the preferred provider organization (PPO). Uneven application of regional bidding requirements will place new PPOs at a competitive disadvantage relative to established health maintenance organizations (HMOs). A little-noticed section of the regulations implementing MMA offsets this disadvantage and gives PPOs a strong incentive to bid in some regions, but costs to the taxpayer will be high: up to $60 billion over ten years.
http://content.healthaffairs.org/cgi/content/abstract/hlthaff.w5.399
Comment: We have been sold the concept that Medicare can improve quality and reduce costs only by introducing private plans that compete in the marketplace, competing with each other and with the traditional Medicare program. Is that really true?
Competing health plans under the Medicare + Choice program were not able to reduce costs. In fact, when it was recognized that costs were actually higher, rate increases were reduced and many plans fled the market, even though they were still receiving more funds than were paid for comparable services under the traditional program.
You would think that this failed experiment would have been enough. But no. Congress then established the Medicare Advantage program, specifically designed to be certain that PPOs would enter the private Medicare market. To ensure that private plans would be successful, Congress provided extra funds for the plans, estimated by some to be as much as 119% of the amount paid for comparable services in the traditional Medicare program.
Now we see that this was still not enough. Since it was clear that PPOs would not be able to compete with HMOs in some regions, rules were established that could result in giving PPOs an additional $60 billion in incentives to cover regions not served by HMOs.
Wouldn’t it be appropriate to ask how paying more money reduces costs? Shouldn’t we ask for an explanation of how providing extra funds to private plans creates a level playing field for competition with the traditional Medicare program?
Maybe Congress had something else in mind. Maybe they wanted to see private plans thrive, and they knew that they could not without trumping marketplace dynamics by artificially infusing extra funds into the private element of the competing programs.
Why would Congress and the administration go to such an effort and expense to support private plans? We think we know. Once such plans are commonplace, then Congress can begin a process of neglect by design, transforming the traditional Medicare program into a severely underfunded program that will satisfy no one, patients and providers alike. Once private plans predominate, the process of shifting costs to the Medicare beneficiaries through innovative product design can be accelerated. The ultimate goal is to shift the responsibility for funding health care away from the tax system and back to the individual.
Once again we’ve fallen into the trap of letting the opponents of government frame the debate. They would have us believe that only marketplace competition can improve quality and reduce costs, but by their own deliberate interference in the marketplace, they have shown us that they know that the market didn’t work.
Advocates of market competition will tell us that monopolies (single sellers) and monopsonies (single buyers) can destroy market competition by gaining exclusive control of the market. That is true, but does that mean that we would automatically receive lower quality health care at a higher cost?
Suppose that the monopsony were our own public, single payer insurance system. Wouldn’t we be in a position to demand higher quality health care than we are currently receiving? And wouldn’t we be in a position to demand fair pricing of services so that we would receive appropriate value for our health care investment?
Let’s no longer participate in the debate on health care reform as they have framed it: the failed model of market competition between health plans. Let’s move on to our framing of the debate: a single payer monopsony that provides higher quality at fair prices.