Everyone used to know that Medicare Advantage (private insurance) is more expensive than traditional Medicare (public insurance). The following figure, which Sarah Kliff posted two days ago, shows this clearly.
Republican pundits now deny this previously uncontroversial fact. How? Well, they claim that a study published in the August 1st issue of the Journal of the American Medical Association (JAMA) proves that Medicare Advantage is a bargain compared to traditional Medicare. In other words, moving seniors from traditional Medicare to private plans will save taxpayer money.
If you read the JAMA article in the link above you will see that the study proves no such thing. David Cutler, one of its authors, complains bitterly about Republican misuse of the research.
Supporters for the Romney-Ryan approach to Medicare have a new talking point. They say a new study by “three liberal Harvard economists” proves that the plan’s competition will reduce health care costs without harming beneficiaries. But the study doesn’t say that.
And I should know. I’m one of the economists who wrote it. ….
Both Mitt Romney and Paul Ryan have said they would like to convert Medicare into a “premium support” (nee voucher) system. …. Starting ten years from now, new retirees … would receive a voucher and shop for an insurance policy in a specially regulated market.
The voucher would equal the price of the second-cheapest plan in the market …. Both Romney and Ryan now say that traditional Medicare … would be among the options in the marketplace. But they would not guarantee that voucher can pay for it. In fact, that’s very much the point of the proposal: To create more competition between Medicare and private plans, even if that means Medicare ends up costing more than the vouchers are worth.
To do this, we examined what would have happened if, today, something like the Romney-Ryan plan were in place: In other words, if today’s seniors were getting vouchers, how much would those vouchers be worth? ….
We found that 24 million seniors, or about two-thirds of the people presently enrolled in the traditional Medicare program, would have to pay more—specifically, an average of … $768 per year. Some seniors already enroll in private plans, as part of the “Medicare Advantage” option …. About 7 million seniors or more than 90 percent of that group would have to pay more. ….
Doesn’t that prove competition can really lower costs? ….
[No,] for several reasons. First, it confuses costs and payments. Medicare Advantage plans bid less than traditional Medicare, but they are paid more. ….
Second, … Medicare Advantage plans can only cost what they do because … Medicare sets very low payment rates to providers, and Medicare Advantage plans bargain up a bit from those rates. Get rid of the traditional Medicare program, or even reduce its enrollment substantially, and the estimated cost of Medicare Advantage premiums skyrockets.
Third, determining whether the private plans are really more efficient than traditional Medicare requires more than just knowing that they bid less. The question is why private plans come in cheaper. …. [I]t’s possible that the private plans are cheaper because they really do offer the same benefits at a lower cost. It’s also possible that the private plans are cheaper because the insurers are very good at attracting the best risks—that is, the healthiest seniors least likely to run up medical bills—or because they don’t also subsidize other parts of our health care system, such as medical education. In effect, they may be gaming the system. At this point, we really don’t know which answer is correct, although it’s entirely possible all three are true, to an extent.
David Cutler, “Hey Republicans! Stop Misusing My Medicare Study!“, The New Republic, blog, 21 August 2012.
David Cutler was senior health care advisor to the Obama 2008 Presidential campaign.