James Capretta and Yuval Levin have an article in the Weekly Standard on the Song, Cutler, Chernew study that makes a number of important observations:
The Harvard researchers looked at the (limited and constricted) private-plan option already operating in Medicare today—a program called Medicare Advantage, created in 2003, which allows seniors to have their benefits provided through private insurers—and found that, on average, the Medicare Advantage plans cost far, far less than federally run fee-for-service Medicare.
This is the opposite of what Democrats were saying a year ago. Then, they were touting a Congressional Budget Office study that estimated the private plans offered to Medicare beneficiaries in the system Ryan envisions would cost much more than traditional fee-for-service Medicare, and thus require higher premiums—$6,400 higher in 2022—to be paid by beneficiaries. This new study shows otherwise, and proves the very point that champions of premium support have been making for years.
And this is despite the fact that the Medicare Advantage programs severely restricts the scope of business model innovation:
[B]ecause the JAMA study is based on the existing Medicare Advantage program, which is dominated by a regulated payment system instead of true competition, it likely understates the potential savings. Under premium support, the competition (in terms of both price and quality) would be significantly more intense, which would drive costs down further. Thus, taxpayers and the program’s beneficiaries would almost certainly save even more than the significant amount the JAMA study unwittingly implies.
This is very encouraging, and worth reading in conjunction with Atul Gawande’s new article on the potential of hospital chains.