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Letters to health-care Santa: Bring the market to Medicare Advantage, and the House's employer mandate to the final bill

me.jpgOver 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.

By Ezra Klein  |  December 22, 2009; 1:00 PM ET
Categories:  Health Reform  
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Next: Conservatives to Griffith: We're still coming for you


You should tell your readers you're only interviewing economists who are publicly supporting the Senate bill. Others need not apply.

Posted by: bmull | December 22, 2009 1:21 PM | Report abuse

bmull, everyone must know this a pass any bill blog by now.

Posted by: obrier2 | December 22, 2009 2:02 PM | Report abuse

bmull, the applicants for Klein's "think"-pieces also can never have been in the private sector or owned a business where they actually had to be responsible for the bottom line.

None of them seems to know where "government money" comes from. They just sprinkle subsidies at will like fairy dust.

Posted by: parkbench | December 22, 2009 3:14 PM | Report abuse

in his blog the author says he can't afford the non-group market, but here he champions the same flavor of "market economics" that makes insurance expensive for everyone outside the major employer market

Posted by: jamesoneill | December 22, 2009 4:00 PM | Report abuse

bmull and obrier2, Come on.

Look, Ezra (like every other person on this planet) has a right to his opinion, and he has, on multiple occasions, taken the time to explain (in great detail) why he holds the positions he does. And of course you and others have the equal right to disagree with both those opinions and the points he's made to support them.

But also note that even if Ezra didn't support the Senate bill, it's still likely be passed within the next couple of days, after which time the process will move on to Conference.

And while it is true that the final bill will look a lot like the Senate bill on many (especially higher profile) issues, there remain several smaller issues that, despite their lower profile, can still have sizeable impact on the quality of the final bill (both in terms of cost containment and benefits to the American people).

There are many people (including myself) who recognize (like Ezra) that the current bill is flawed, but we also believe that it represents an important start. We therefore recognize the importance of improving upon the policies, both in the coming days and weeks (in Conference) before (hopefully) the final passage of this effort, and in the years that follow. It's therefore really important, to me at least, that I understand the (many) different ways in which this might be done.

Anyhow, I'm not sure how Ezra would be able to help his readers understand the next steps in the process and/or the different ways the legislation could be improved, if he interviewed people who believed it was more important to stop the Senate bill (and the current process) rather than find ways to improve it as it moves closer to becoming law.

Posted by: Emes | December 22, 2009 4:13 PM | Report abuse

"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)."

What now?

Posted by: eRobin1 | December 22, 2009 5:05 PM | Report abuse

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