The Agenda

The Center for American Progress on the Next Round of Center-Left Health Reforms

Rather interestingly, the Center for American Progress has issued a proposal for a new Senior Protection Program that begins by fiercely criticizing the premium support proposal in the House-passed budget resolution, yet that embraces a related idea for overhauling Medicare Advantage

:In Medicare Advantage—which offers a choice of private plans—Medicare pays private plans based on a benchmark, which averages 112 percent of spending under traditional Medicare. The Affordable Care Act phases in reductions to the benchmark over six years to an average of 101 percent of spending under traditional Medicare. But in many counties the benchmark will remain up to 115 percent of spending under traditional Medicare.

Since overpayments to private plans will remain, competitive bidding offers potential for additional savings. Instead of linking the benchmark to spending under traditional Medicare, Medicare should base the benchmark for private plans on their average bid by 2014. Such competition among private plans would not undermine or erode traditional Medicare.

One of the chief differences between this approach and the hybrid of defined benefit and defined contribution backed by House Budget Committee Chairman Paul Ryan is that the Ryan approach links premium support to the second lowest bid in a given region, thus encouraging Medicare beneficiaries to choose the most cost-effective plan. The goal of this approach is to encourage productivity-enhancing business model innovation on the part of medical providers, a goal that may or may not be realized. The CAP proposal, in contrast, provides no incentive to choose private plans that cost substantially less than Medicare FFS, hence it generates relatively modest savings. On the other hand, the CAP approach also won’t encourage relatively healthy beneficiaries to exit from Medicare FFS disproportionately. 

An important question about the CAP report is the impact it will have on the transition from fee-for-service to more integrated care delivery models. IPAB and other public agencies aim to accelerate this transition through administrative direction, which will presumably meet with political resistance. The Ryan approach, in contrast, is designed to leverage the cost-consciousness of Medicare beneficiaries to accelerate this transition. Daniel Kessler has described this approach as one that “depoliticizes Medicare.” The problem, of course, is that private plans will also lobby to secure more generous terms from the federal government, and so true depoliticization will be difficult to achieve. But the advantage of a less prescriptive approach is that innovations might diffuse more quickly via a market process than via a prescriptive bureaucratic process.

The report also includes a shrewd rebranding of all-payer rate-setting:

[A]t a macro level, states should have the option to form “accountable care states.” Accountable care states would have a global target for all health care spending by both public and private payers. They would be encouraged and empowered to achieve savings by implementing innovative payment and delivery system reforms (including reforms to scope of practice), price transparency initiatives, and administrative efficiencies. Accountable care states would receive enhanced flexibility and implementation grants to develop and implement savings plans.

If actual health care spending falls below the global target, states would be eligible for substantial bonus payments. To receive bonus payments, states would need to meet performance targets on publicly reported measures of cost, quality, and access—and would receive higher bonus payments for higher performance. The measures should include the rate at which generic drugs are substituted for brand-name drugs and the supply of expensive diagnostic technologies. Both of these measures substantially impact health care costs, but only states can effectively influence them.

And there are many relatively small-bore ideas in the report, like reducing Medicare payments to skilled nursing facilities with high rates of rehospitalization and encouraging greater use of nonphysician providers and curbing excessive payments to home health providers, that might deliver incremental improvements to the health system. 

Reihan Salam is president of the Manhattan Institute and a contributing editor of National Review.

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