(The writer is a Reuters columnist. The opinions expressed are his own.)
By Mark Miller
CHICAGO (Reuters) - Here’s the $64,000 question on the Republican plan to voucherize Medicare: Can consumer choice and market competition drive down Medicare costs?
The Romney-Ryan presidential campaign ticket thinks so. If they are right, seniors might not have to pony up thousands of additional dollars per year for the cost of Medicare beyond the voucher’s value. If wrong, there will be a massive cost shift to seniors to make up for the market’s failure.
Fortunately, we don’t have to implement Paul Ryan’s premium support plan to get an answer. That’s because there’s already plenty of competition in Medicare and it has not resulted in lower costs, according to recent evidence. In addition, the competition hasn’t pushed seniors to shop effectively for low-cost options.
So, unless some market magic is around the corner, seniors would have to dig deep into their wallets under a Ryancare plan.
Everyone enrolled in a Medicare prescription drug plan shops in a marketplace of private insurance plans, which offers plenty of competition to ostensibly keep prices low. And one-quarter of Medicare beneficiaries get their care from private Medicare Advantage managed care plans - private offerings that they shop for, as they would under Ryan’s premium support plan.
Advantage has been offered in its current form for two decades as an alternative choice to traditional fee-for-service Medicare, and the Part D drug program started in 2006.
But there is little evidence that competition has resulted in lower costs, despite the claims of Ryan and Romney. And in the case of Medicare Advantage, prices are higher than in traditional Medicare.
The annual per-enrollee cost for Medicare Advantage averages 3 percent more than traditional fee-for-service (FFS) Medicare in urban areas, and 6 percent more in rural areas, according to a study to be published soon by researchers at George Washington University (GWU).
Advantage plans are required to deliver a benefit package at least equal to FFS Medicare.
For 2009, on average, FFS Medicare cost $8,731 per patient, while Advantage plans cost $8,933 - and with the subsidies Advantage plans were paid $9,967, according to GWU research.
Though some Advantage plans deliver benefits above and beyond FFS plans, the researchers considered only what it cost them to match FFS benefits, with no extra services, for fair comparison.
But here’s the most interesting finding: the cost comparisons vary tremendously across the country. And in counties where Advantage plans are less expensive than FFS, you’d expect a larger share of enrollees to pick them as cost-conscious consumers seek to drive down their health care costs.
But no such pattern exists. Instead, the data are all over the map - suggesting that seniors aren’t shopping the market to find lowest-cost plans.
For example, in Dade County, Florida Medicare Advantage costs are 68 percent of FFS costs - and 49 percent of Medicare enrollees there are in Medicare Advantage. But in Clackamas County, Oregon, where Advantage costs are 130 percent of FFS costs, 56 percent of Medicare patients are in Advantage plans.
So, after 20 years of market competition, where’s the market magic? There isn’t any, at least so far.
Ryan argues that innovation and competition will bring down costs, but Advantage plans’ internal costs are 13 percent higher than the FFS system, due to the cost of marketing and advertising expenses to attract enrollees, negotiating with providers and maintaining a profit margin, according to the GWU research.
“The question is, can they recoup that or more by creating efficiencies in the way they deliver health care?” asks Dr. Brian Biles, a physician and professor in the department of health policy at George Washington University and one of the principal researchers on the study.
In contrast, FFS Medicare has enormous operating efficiency, Biles argues, because it operates as a vast national preferred provider organization. That allows it to set the prices it will pay to health care providers - who generally have no choice but to accept the rates on offer.
“If they’re lucky, Advantage plans can negotiate to not pay any more than FFS Medicare,” he says. “In some parts of the country, hospitals and doctors agree to that, and in other areas they don‘t.”
How about prescription drugs?
Paul Ryan often points out that the cost of Medicare’s prescription drug program has come in 40 percent below what the Congressional Budget Office (CBO) initially projected for the program, and he credits that to choice and competition.
But research by the Kaiser Family Foundation points to other reasons for the lower costs, including:
--Lower-than-projected enrollment. When the prescription drug program was launched, CBO projected that 87 percent of Medicare beneficiaries would enroll, but actual participation has been lower - 73 percent this year.
--Spending on prescription drugs has slowed everywhere. CBO’s 2003 projection assumed 12 percent average annual per capita growth in drug spending throughout the health care economy (not just Medicare) through 2006 and 9 percent after that; actual growth was 10 percent and 4 percent, respectively.
--The growth of generic drugs. Few new brand-name blockbuster drugs have come into the market in recent years, and substitution of inexpensive generics has grown rapidly in the prescription drug program. The share of generic drug use in the program rose from 61 percent to 75 percent in 2010, and almost certainly has continued to jump since then, Kaiser reports.
Unless the dynamics of the prescription drug marketplace change dramatically, the real debate on Medicare privatization will be about the privatized managed care plans versus traditional FFS Medicare.
If Ryancare is implemented, its success will hinge on whether managed care plans can do a better job of negotiating prices it pays, or by reducing the amount of health care it authorizes for patients.
If they can’t do those things, the big predicted cost shift to seniors would occur. How big would it be? It’s impossible to pin down a number on the current Romney-Ryan plan, because the campaign hasn’t offered specifics on the amount of premium support, and many other details.
But an earlier version of Ryancare released in 2011 had sufficient detail to be analyzed. A Kaiser analysis based on CBO data put the cost shift for seniors at $6,870 per year.
With economic security fraying quickly for older Americans, that is not a burden we can afford to load on older Americans.
Editing by Chelsea Emery and Alden Bentley