The Patriot Post® · Let's Privatize Medicare

Paul Ryan proposed a private health insurance alternative to Medicare for future retirees, liberal critics pounced. It’s another scheme to undermine health care for the elderly by “privatizing” and “voucher-izing” the program, they said.

Yet, almost one third of seniors are already in private health insurance plans. They are called Medicare Part C, or Medicare Advantage, plans. And you would be hard pressed to find any Democratic office holder who wants to abolish them. The reason? Seniors choose to be in these plans because they like them better than traditional Medicare.

Not only do seniors like them, but they appear to provide better care for less money. That’s the conclusion of a new study by two Harvard University health economists, Joe Newhouse and Tom McGuire. These mainstream researchers – neither of whom can be called a right-winger – conclude that Medicare Advantage plans not only lower the cost and raise the quality of care for their enrollees, there are also spillover effects. In markets where Medicare Advantage plans have a significant presence, cost goes down and quality goes up for other patients as well – including traditional Medicare patients.

Austin Frakt, another health economist (left of center politically, no less), points to some recent research that confirms the positive health benefits of private insurance for the elderly:

… according to a paper in Health Affairs by John Ayanian and colleagues, women enrolled in a Medicare Advantage H.M.O. are more likely to receive mammography screenings; those with diabetes are more likely to receive blood sugar testing and retinal exams; and those with diabetes or cardiovascular disease are more likely to receive cholesterol testing.

That Health Affairs paper also found that H.M.O. enrollees are more likely to receive flu and pneumonia vaccinations and about as likely to rate their personal doctor and specialists highly.

Frakt, who is left of center politically, wrote this at The New York Times economics blog. Alert readers will remember that that is the same newspaper where columnist Paul Krugman has assured us in editorial after editorial that traditional Medicare is superior to private health insurance. Of course unlike Frakt, Krugman’s opinions are often contradicted by facts and evidence.

Right now the federal government pays the Medicare Advantage plans about 6% more than it would have spent had the enrollees stayed in traditional Medicare. But the Harvard economists suggest that the extra payments might be worth it. They go on to suggest that it might be good public policy to encourage all seniors to be in private health plans.

One irony in all of this is that in the 2008 election campaign, Barack Obama promised to eliminate the extra subsidies for Medicare Advantage plans. He didn’t promise to abolish the plans. But he did propose no favorable treatment and he implied that they were not delivering elderly enrollees anything special.

Instead, the president promised, “We’re going to find out what works and then go do it.”

In pursuit of that objective, we have spent tens of millions of dollars on demonstration programs and pilot projects investigating coordinated care, integrated care, managed care, pay-for-performance medicine, electronic medical records systems, etc. The result? Three separate Congressional Budget office reports have concluded that none of this is working, or at least not working very well. (See here, here and here.)

Yet here is a second irony. As I have pointed out before (see here and here), many of the ideas that aren’t working in the pilot programs both here and in other countries actually are working in some of our best Medicare Advantage plans – especially in ones that are contracting with doctor associations. IntegraNet of Houston, for example, routinely lowers costs by about 25%, while raising quality at the same time. Overall, the Medicare Advantage space is the only place in all of Medicare where the president’s health reform promises are being realized!

The most significant innovations in medical practice are usually produced by entrepreneurs and although they may be motivated by many factors, entrepreneurship tends to flourish where there is significant downside financial risk and significant upside potential for profit. That’s why some of the most interesting things going on right now are in independent doctor associations, managed by entrepreneurs, in contrast to the activities of hospitals, insurance companies and government agencies.

Here is a third irony. The ill-advised (medical loss ratio) regulations which the Obama administration has foisted on the entire insurance industry are inadvertently facilitating these developments. They have spurred insurance companies to shift the management of care to doctor organizations and thus increased the sphere of opportunity for entrepreneurial medicine. See my explanation of this at Health Affairs.