More on can vouchers save Medicare $

There has been a flurry of writing about whether the Medicare Advantage (MA) program and vouchers in general, are a way to save the Medicare program money. This is an old debate, invigorated by Rep. Paul Ryan's proposed 'Roadmap' plan that would move to a voucher approach for Medicare. Austin Frakt wrote a piece in the Kaiser Health News that I think is about right on. Avik Roy didn't like it so much, and now James Capretta has weighed in as well, and Austin is back to the fray, again making sense.

Just a couple of quick thoughts.

First, Medicare Advantage and all of the predecessors which have paid private insurance companies fixed amounts based on the avg. amount spent by Medicare in a beneficiaries county of residence (therefore, tied to historical use) have been a 30 year failure to save money. Even when they paid 95% of the average adjusted per capita cost in a given county, they did not save money for Medicare because the people who choose them were healthier than average and would have spent less than 95% of the AAPCC. On average, healthy people sign up for private Medicare.

Second, so long as people are allowed to choose to enter private plans, while others remain in fee for service Medicare, this seems likely that the sickest folks will stay in FFS Medicare. I am not sure if it is brilliant marketing by Medicare Advantage plans (and predecessors) or that sicker folks aren't interested in the various limits of physicians that may come with such plans or what. Perhaps a good Ph.D. dissertation topic there.....This means that private plans being more efficient will allow them to make more money, but they cannot save Medicare a great deal unless the sickest, most expensive folks enter private Medicare plans, however formulated.

To truly test whether vouchers could work to lower costs, you would need to run an experiment whereby all persons in some geographical areas have to choose among several private plans, using a voucher amount that would (presumably) be associated with their health status. It seems politically impossible to force all persons in a county or region into a private plan, but that would be the test to see if vouchers could reduce Medicare spending.

Austin's original comments actually focus on the political problems of cost control, not a technical risk adjustment or bidding problem. The political problem is that everyone says they want to save money in health care in generally, and Medicare in particular, but they really don't. The instant you try something that might save money, they go nuts. Patients don't like limits. Doctors like to get paid more than they do. Hospitals want more and so on. So, cost control is hard enough....when you add private insurance companies who have to run a business, that just adds one more group who says 'we must save money' but what they mean is 'so long is we don't get paid less.' I don't blame them or think they are bad, they are doing their business. They just don't offer much hope to save the Medicare program a great deal under any voucher based scheme that has a chance of being enacted.

Here is what I wrote last year about Medicare Advantage in the Raleigh News and Observer, and here is what I have written recently about our culture saying we want to save money in health care but not actually meaning it.