A lot of the debate that has been raging about health care reform can be boiled down to a basic principle: how much of our health care system should be guided by the principles of a free-market; and how much should be guided by a more organized and controlled method? Some call the “organized and controlled” socialized medicine, I wouldn’t go that far.
The evolution of our Medicare Advantage program for seniors may provide some insight into which approach may work the best.
Trying to address and manage the costs of our Medicare program has been on the table for quite awhile. In 1997 the Medicare Choice program was put in place as a mechanism to wrap “managed care” into the benefits received by Medicare beneficiaries. This was largely funded by the government and used individual health plan contracts to deliver the health care services to the population. So, this was a combination of a free-market/government approach.
As funding for services from the government deteriorated over the next five years, nearly half of the Medicare Choice programs cancelled their contracts leaving over 1.5 Medicare beneficiaries scrambling to find replacement coverage. The free-market delivery combined and government funding combination wasn’t working very well.
In 2003, Medicare Choice was changed to Medicare Advantage and included increased funding from the federal government and a slightly different structure to deliver services to the Medicare population. These programs increased participation significantly as health plans and private market players jumped at the opportunity to grab some of this new revenue. These private market players did very well. But, it came with a cost.
Some organizations utilized aggressive marketing and compensation arrangements to take advantage of Medicare beneficiaries to gain enrollment. The free-market crossed the line. In 2008, new marketing and compensation rules were put in place to protect the individual consumer.
Today, there are over 2,300 Medicare Advantage plans available to Medicare beneficiaries. More than 10 million people (1 in 4 on Medicare) are enrolled in a Medicare Advantage Plan. On average, individuals are able to select from 30 different plans in addition to Medicare- and some have an option of over 70 plans.
These programs all offer different benefits, out-of-pocket limits, copayments, deductibles, and premium costs creating a monumental task for the individual consumer to figure out which program is best for them. And the costs of these programs continued to increase (opposite of what should happen in a free-market). In 2010, enrollees of the Medicare Advantage Prescription Drug Program will face, on average, a 32% increase in their premiums.
So, while a true free-market is the desire of our country, we have already proven a true free-market simply does not exist in health care. There are too many external factors at play. And while a variety of options may look nice, too many options only confuse the consumer and disrupt the operation of the market.
University of California-Berkley Nobel Prize winning economist Daniel McFadden puts it this way, “If consumers are up to this task, then their choices will ensure that the plans, and insurers, that succeed in the market are the ones that meet their needs. However, if many are confused or confounded, the market will not get the signals it needs to work satisfactorily.”
Too many consumers are confused and confounded today. The market is getting the wrong signals.
Click Here to grab Kaiser Foundation’s Write-up on the Medicare Advantage benefits structure for 2010
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