After President Obama’s reelection win, you might think that talk of competition in Medicare—a cornerstone of Mitt Romney’s campaign—would fall by the wayside. But introducing greater competition into the health program for older Americans is an idea that could prove ripe for a bipartisan compromise in any "Grand Bargain" on the budget.
The future of Medicare was a potent issue during the campaign, with Democrats and Republicans offering sharply different views. Romney and other Republicans pushed to have Medicare compete with private plans in an open marketplace, betting that consumers’ power of the purse would drive down the ever-growing costs of the programe. Democrats strongly opposed that plan, saying it would not actually reduce spending and would instead end up costs seniors thousands more than the traditional Medicare coverage they have today.
But just a few weeks after the election, the liberal Center for American Progress issued a report proposing $385 billion in health care savings over 10 years. Finding money in the mammoth federal health program is important in the “fiscal cliff” talks, as Republicans are demanding cuts to entitlement programs in exchange for tax increases on the wealthiest Americans in working out a deal to put off $1.2 trillion in automatic cuts to government spending.
One of the center's proposals? Adding competition into Medicare. Specifically, the group wants companies that make Medicare equipment to offer bids on prices, as opposed to the current practice of paying those companies a formulaic rate. The Affordable Care Act established a bidding system for “durable medical equipment”—things like hospital beds and oxygen tanks. The program has wrung savings of $200 million from Medicare so far.
But beyond bidding on goods, CAP also proposed having private Medicare plans, known as Medicare Advantage, offer bids for covering seniors. The federal government would then pay plans an average amount of the bids. That method would differ the current Medicare Advantage system. Now, the feds pay plans at a rate based on the expected cost of Medicare in their region of the country. It ends up costing the federal government on average 112 percent of traditional Medicare.
The CAP Medicare Advantage proposal is like a grandparent of the Republicans' Medicare voucher plan. Although it doesn’t propose that traditional Medicare compete on the bidding exchange—something Democrats say can’t happen now, largely because the sickest and most expensive patients would end up staying on traditional Medicare, driving up costs—it does build a foundation for competition among Medicare plans.
This isn’t the first time Democrats have backed such an idea. President Obama in his fiscal 2009 budget also proposed adding competitive bidding to Medicare Advantage, something that earned him cautious plaudits from Republicans.
“This is potentially an attractive change to the Medicare program. Much would depend on how the legislation is crafted, the details of the process, and what the administration means specifically by ‘competitive bidding’,” Heritage Foundation health scholar Robert Moffit told the House Small Business Committee in 2009.
“If the process is a way for the government to pick ‘winners and losers’ among health plans, something akin to a [Defense Department] procurement process, it would be incompatible with personal choice and market competition among competing plans.… If it is a way of establishing a more rational benchmark for Medicare payment, and allowing persons to pick richer health plans and pay for the extra benefits, if they wish to do so, or picking less expensive health plans and keeping the savings of those choices, the president's proposal could be a significant improvement over the current system,” Moffit said.
The CAP proposal earned similar cautious endorsements from Republicans: Competition is good if it is mostly free of government regulations.
“On the face of it, the idea sounds reasonable enough – encourage plans to lower premiums by offering a variety of choices. But the catch here – as in the rest of the CAP proposals – is that ‘competition’ is government-defined, government-mandated, and government-prescribed,” wrote Chris Jacobs, a senior policy analyst for the Sen. Jim DeMint, R-S.C., on the Joint Economic Committee.
Perhaps it is too early in the process of avoiding the fiscal cliff and finding a grand bargain to reach common ground. But Medicare Advantage may just be the place where Democrats and Republicans find it possible to inch closer toward compromise.