The Republicans’ budget, released today, would rely on competitive bidding. And although the structure of such programs can get complex, the thing to know is this: 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.
Medicare has also experimented with competitive bidding over the past few decades, introducing it into the program in some smaller ways. The Obama administration has also previously proposed competitive bidding within Medicare Advantage plans, the privately administered alternatives to the traditional, fee-for-service program. This all means that we already have some sense of whether competitive bidding could get Republicans to their budget goal on slowing health-care cost growth.
Competitive bidding has certainly shown some savings success. One Government Accountability Office report on competitive bidding for “durable medial 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.
Could competitive bidding slow the cost of Medicare to hit Republican budget targets? There’s some evidence it would: When the Obama administration proposed using competitive bidding within Medicare Advantage, the Congressional Budget Office estimated the proposal would save $158 billion over a decade (although, to be fair, these plans were already receiving higher payments than traditional Medicare).
But scaling competitive bidding programs, even as demonstration projects, has proved challenging. Austin Frakt charts a pretty exhaustive history of Medicare starting, and stopping, and then starting again on various competitive bidding projects.
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.
It’s also unclear from the Ryan budget what, exactly, happens if competitive bidding does not succeed at getting health-care costs to grow only 0.5 percent faster than the economy. The “Plan to Prosperity” does note that lower-income seniors “would receive fully funded accounts to help offset any out of pocket costs.” There’s not much detail, however, on who would be eligible, how much would be deposited into these accounts or on what impact they would have on the deficit.