Private Medicare that Works

I told my undergraduate health economics class today that only members of Congress read the New York Times.  Well, for the second day in a row I’m writing about a Times article.  I’m not a member of Congress so I must be wrong about the newspaper’s readership.  I’ll admit that I’m not in agreement with much of the editorial content of the New York Times, but when I do agree I should acknowledge that fact.

Robert Pear writing this past weekend (“Despite Democrats’ Warnings, Private Medicare Plans Find Success”) looks at the success of Medicare’s two privately-run programs, Medicare Advantage and its out-patient prescription drug program, Part D.  Both have proven quite popular and relatively successful in controlling spending.  Medicare Advantage provides primary insurance coverage to over 12 million enrollees, over 25% of the eligible population.  The competitive bidding process for 2013 recently concluded and for the third consecutive year premiums remained constant.  Similarly, Part D, which is exclusively private coverage, provides drug coverage for a premium that is 30% lower than predicted when the program began.

Competition and choice are powerful partners providing incentives to improve efficiency and hold down spending.  These are the same incentives that Paul Ryan believes can accomplish similar results for the rest of Medicare.

But Ryan has his doubters.  When Part D was being debated in the House 10 years ago, then Speaker Nancy Pelosi said: “Most seniors will be worse off.  This is the beginning of the end of Medicare as we know it.”

In the same vein Democrat Senator Tom Harkin said: “We hear the claim that private-sector competition will drive down costs and save Medicare.  Nonsense!”

I don’t give much credence to bloviating, partisan politicians.  I tend to agree with serious scholars like Roger Feldman, University of Minnesota health insurance professor, when he said: “Competitive bidding could save a substantial amount of money, helping solve Medicare’s fiscal crisis.”

Ryan’s premium support plan to reform Medicare is based on competitive bidding.  Instead of relying on the US taxpayer to shoulder the entire financial risk associated with the growth in Medicare spending (the case with traditional Medicare), why not let private insurers share in that risk (like in Medicare’s Advantage and Part D programs)?  Maybe Paul Ryan is on to something.

Note to self: Don’t be so hard on the New York Times.  Occasionally, they get it right.