Over at WaPo’s Wonkblog, Sarah Kliff attempts to highlight “What Paul Ryan learned from Obamacare.” In particular, Sarah draws a comparison between the competitive bidding process found in Ryan’s Path to Prosperity and the version in Obama’s ACA. She also points to some possible drawbacks (in addition to some possible upsides):
Under the Ryan budget, private plans would send the government an estimate of the premiums they would charge for insurance coverage that is at least as generous as the standard Medicare benefit package. The second-lowest of those “bids” would set the benchmark for how much premium support seniors receive. Seniors could spend that support on traditional Medicare, a less-expensive private plan (and receive a rebate), or a more-costly coverage package (and pay the difference). If this sounds familiar, that’s because it’s the same process the Affordable Care Act uses to set premiums on the exchanges that launch in 2014. There, insurance subsidies are tethered to the cost of the exchange’s second-cheapest (or “silver”) health insurance plan. A person who wants to purchase a more expensive plan would have to foot the bill for the difference. …
Competitive bidding has certainly shown some savings success. One Government Accountability Office report on competitive bidding for “durable medical equipment,” things such as prosthetics and wheelchairs, found that a demonstration project in two locations “saved Medicare $7.5 million and saved beneficiaries $1.9 million — without significantly affecting beneficiary access.” A second round of that demonstration project, which wrapped up last summer, dropped the prices of some Medicare equipment 35 percent. This is a program that some supporters of the health reform law, such as Zeke Emanuel, have advocated expanding. …
Patient groups have contended that competitive bidding can be harmful to beneficiaries, curtailing access and choice to specific benefits. There’s some concern about adverse selection: Health insurance plans could structure a less-expensive benefit package in a way that would attract only the healthiest seniors, potentially leaving traditional Medicare with the sicker patients. Many members of Congress have opposed the expansion of competitive bidding and pursued repeal legislation, often out of worry for what it would mean for local businesses that supply Medicare products. That means that Medicare’s competitive bidding projects often get delayed, sometimes indefinitely.
I decided to give AEI health policy scholar Joe Antos a crack at responding. Antos said that in the “broad sense” Kliff was correct, but saying Ryan and Obama agree on how to structure a competitive market was a real stretch. Here’s why:
1. The exchanges will have some kind of a bidding process, but it could be heavily managed by the exchange. California has already made it clear that it will select a limited number of plans that will be allowed to offer coverage on the exchange, and other plans will be excluded even though they meet all other criteria. Other states will take more of a hands-off approach, but even in those cases their offerings will be heavily regulated thanks to the essential benefits requirement, the medical loss ratio test, and numerous other regulations spawned by ACA. Ryan’s approach is far less regulatory, although within the current Medicare framework which already limits the kinds of plans that can be offered. For example, plans that offer tiered provider networks are heavily discouraged by HHS, so there are no such plans in Medicare Advantage even though they are the rule in under-65 insurance.
2. “Second lowest” has a different meaning for Ryan and for ACA. Under Ryan, the Medicare subsidy is set according to the second lowest cost plan in a geographic area. Under ACA, the second lowest silver plan probably will not be the second lowest plan available in the market. “Bronze” plans are supposed to cover the same benefits (in general) as silver plans, but they pay 60% of the actuarial value of the full benefit compared with 70% for silver. Unless a silver plan has a very tight provider network or has taken other actions to cut cost, virtually any bronze plan would be less expensive than any silver plan.
3. The problem with competitive bidding is that a poorly designed process can result in substandard care or can lead to a monopolized market, but a well-designed process is also not complaint free. The DME case is a good example: small suppliers in the local market often cannot compete with the big chains, who may not have a store front operation nearby. The trade-off is more personal (although not necessarily technically better) service for higher federal cost. Politicians who fight off well-designed competitive bidding projects in Medicare are protecting local businesses but not necessarily doing the patients a favor.