The substance of the Medicare debate in the 2012 election is completely at odds with the realities. The Romney campaign hammers away at the $716 billion in “Medicare cuts” imposed by the Affordable Care Act, designed to blunt a traditional Democratic advantage on the topic, as it did in 2010. So far this has worked; the last two national polls show the Romney-Ryan ticket ahead of Obama-Biden on the subject of Medicare.
What’s actually happening on the ground is messier. About 40% of the cuts in the ACA, which are actually savings, to Medicare consist of reductions in the subsidy paid to Medicare Advantage, the private competitor to traditional Medicare. The claim from the Romney side is that this will lead to higher prices for Medicare Advantage, and worse care. The claim from the Obama side is that these represented overpayments to a subsidized private system that increased overall costs.
In reality, Medicare Advantage has actually thrived since 2010, in ways that should give pause to both sides (although this article is pretty one-sided in its framing).
More than a quarter of the 50 million beneficiaries receive coverage through private Medicare Advantage plans, mostly health maintenance organizations, and Medicare’s drug benefits are delivered exclusively by private insurers, subsidized by the government.
Obama administration officials, lawmakers from both parties and beneficiaries have generally been satisfied with the private plans.
“Medicare Advantage premiums down 7 percent on average, enrollment up 10 percent,” the administration announced in February, and it said the quality of care under Medicare Advantage was improving.
This month the administration reported the results of competitive bidding for 2013: “Medicare prescription drug premiums to remain steady for third straight year.”
Federal spending on Medicare drug benefits has been about 30 percent lower than the Congressional Budget Office predicted when the drug legislation was passed in 2003.
The article tries to make an argument in favor of the premium support/competitive bidding approach to Medicare, and how it has held costs down. First of all, I don’t think you can attribute the decline in prescription drug costs to competitive bidding. It’s deliberately not as competitive as it could be, as federal law bans Medicare from bargaining with private vendors over drug prices. Second, there are a variety of alternative explanations for the decline in the growth of drug spending, including the slower development of new drugs (meaning that more older drugs slip into cheaper generic versions as the patents expire, while fewer new drugs take their place) and moves away from the more expensive remedies when other treatments are available. The market forces have little to do with it.
As this relates to Medicare Advantage, what this shows is that they never needed the higher subsidies from the federal government to thrive. Not only could MA plans continue to grow, they could be delivered at a lower cost than insurers claimed. And it’s not the competition that has held down costs; there’s no evidence for that in the data. And what’s true for Medicare Advantage may well be true for the ACA’s insurance exchanges, which use the same mechanisms of competition to attempt to bring down costs.
I’m not completely sold on Medicare Advantage. Some MA plans offer better services to customers, though they also cherry-pick healthier seniors (some offer a gym membership with the plan, which attracts a certain type of healthier individual). This does raise costs in Medicare, as the remaining risk pool becomes sicker. Aggressive regulation of the private plans offered to Medicare-age seniors blunts this impact, and a regulated marketplace has generally succeeded in this respect.
I don’t think either party has a monopoly on perfectly describing the lessons from Medicare Advantage. But in my view, the surefire way to backslide on the progress made with senior health care is to fragment the market even more.