Letters to health-care Santa: Bring the market to Medicare Advantage, and the House's employer mandate to the final bill
Over the course of this week, I'll be asking some health-care experts what they'd like Santa to add to the bill during conference committee, and publishing their responses on the blog. This installment features Austin Frakt, a health economist with a joint appointment at the Department of Health Policy and Management at Boston University’s School of Public Health and Health Care Financing & Economics at the Boston VA Healthcare System. Frakt studies economic issues pertaining to U.S. health-care policy, with a recent but not exclusive focus on Medicare and the uninsured, and blogs at The Incidental Economist.
Medicare Advantage (MA) plans are overpaid. Both the Senate and House bills will change that but in different ways. I think the Senate's approach is preferable because it is based on competitive bidding wherein prices are derived from market signals. Competitive bidding exists for Medicare drug plans and is one reason why that market works as well as it does as a market (ignoring a few other problems for the moment). If the point of the MA program is to use market forces to provide good value for beneficiaries and taxpayers, then competitive bidding should be part of the design. Currently it is not. In contrast, the House bill uses average fee-for-service costs as a benchmark for MA payment rates. That's a continuation of administrative pricing (not a market signal), which is the antithesis of competitive bidding. Administrative pricing for MA plans has been subject to all manner of rent seeking and political monkeying. It's time for administrative pricing to go.
Of course the Senate version will prevail if there is no conference (the ping-pong option). A lack of conference, however, will remove the possibility of improvement on the Senate bill in another area: the employer mandate. The Senate version includes perverse incentives for firms to hire workers from higher income families. That's a labor market distortion we don't need. The House version, in contrast, is a straight-forward pay-or-play mandate. In conference, should there be one, the Senate version should be jettisoned in favor of the House's.
Earlier in this series, Diane Archer called for Congress to create national exchanges rather than state exchanges, Alain Enthoven offered some ideas for how to fix the exchanges, and David Cutler proposed a soda tax.
December 22, 2009; 1:00 PM ET
Categories: Health Reform
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