Fix Health Care Policy

The Kaiser Family Foundation just released a study that grossly misrepresents the premium-support model of Medicare reform and apparently misunderstands normal market dynamics and the differences between efficiency, choice, and higher premiums.

The Kaiser study assumes that an entire class of Americans—senior citizens—is insensitive to price. In reality, seniors are price sensitive when they are presented with options. Already, 90 percent of retirees can and do choose the private health plans they like, ranging from supplemental insurance to Medicare Advantage and Medicare drug plans. Premium support encourages intense competition that will change premiums and hold down costs. The larger impact is that seniors would have a choice of the health options they want, while creating needed savings for themselves and the federal government.

Take a simple analogy: Assume that the price of a gallon of gasoline rose from $3 to $300. How much would this affect your driving habits? It is doubtful that you would still buy the same amount of gas every week. Yet that is the economic intuition embodied in the Kaiser study.

The authors of the Kaiser study assume that zero beneficiaries would switch from traditional Medicare to a cheaper plan, despite cost increases. Part of the gain from competition is that health plans must compete for beneficiaries in order to retain or gain market share. They have to secure high satisfaction, as they do today, for example, in Medicare Part D and Medicare Advantage. To create a scenario that simply ignores the gains of market competition grossly misrepresents the economic impact of any consumer-driven market, including a health care market with premium support. The study’s headline is that 53 percent of enrollees in traditional Medicare would pay more, but within the study, when benificiaries respond to higher premiums, the number falls to as low as 33 percent.

Read the rest on The Foundry…

Tags: choice, efficiency, health plans, Kaiser Family Foundation, Medicare, premium support