Uwe Reinhardt: Support for traditional Medicare is based on trust

Why Many Medicare Beneficiaries Cling to an Allegedly Worse Deal

By Uwe Reinhardt, PhD
JAMA Forum, June 1, 2016

Under the Medicare Prescription Drug, Improvement and Modernization Act of 2003, Congress granted private Medicare Advantage health plans more money per Medicare beneficiary than it granted traditional, government-run Medicare. In other words, the per beneficiary cost paid by the US taxpayers was higher for those enrolled in the private plans than for those enrolled under the traditional, government-run Medicare program.

In addition to these extra payments from government, the private Medicare Advantage plans are able to cut costs through tactics forbidden to traditional Medicare, such as conducting cost-effectiveness analysis for coverage decisions and offering limited networks of health care providers. As a result, the Medicare Advantage plans have been able to offer Medicare beneficiaries more benefits at lower premiums than what is available to them under traditional Medicare–evidently a better deal.

So it’s not surprising, as a recent JAMA Forum post noted, that the Medicare Advantage program has grown in popularity. Currently, about 30% of approximately 55 million beneficiaries are enrolled in a Medicare Advantage plan compared with only 6% a decade ago.

But even so, about 70% of the approximate 55 million Medicare beneficiaries still prefer the “worse” deal, traditional, government-run Medicare. What can explain this revealed preference?

Freedom of Choice

One answer, as the JAMA Forum post hinted, is that traditional Medicare still offers  beneficiaries complete freedom of choice among physicians, hospitals, and other professionals or facilities providing health care. In contrast, under Medicare Advantage, beneficiaries are confined to the limited network of such health professionals and facilities chosen by their insurer. Concerns have been raised about the adequacy of networks in the plans, and a September 2015 report from the US Government Accounting Office recommended that the Centers for Medicare & Medicaid Services increase its oversight of Medicare Advantage networks.

Does the general US public actually share the idea that freedom of choice among insurers is more important than freedom of choice among physicians, hospitals, and others who offer health care or is that merely the preference of a policy-making elite that forces the public to accept more limited choice for the sake of cost containment? It is an important question in light of the endless debate over restructuring Medicare.

The Issue of Trust

Another factor that may explain the revealed preference among Medicare beneficiaries for traditional Medicare might be the issue of trust.

It is said that in the eyes of US public, government is incompetent and cannot be trusted. But is that really so?

The strong revealed preference for traditional, government-run Medicare suggests quite the opposite. So does the tenacity with which US veterans defend the existence of the Veterans Health Administration health care system, the purest form of socialized medicine in the world; the public’s staunch opposition to privatizing Social Security, their government-run pension system; or even the most conservative state governor’s swift solicitation of assistance from the Federal Emergency Management Agency whenever natural disaster strikes. Would these same governors have the same trust in, say, an emergency management system operated by a consortium of private casualty insurers?

Enrolling in traditional Medicare can be likened to being married to a spouse who, if not generally thrilling, is an always faithful and reliable companion. The social contract under traditional Medicare is not easily changed and can be changed only after much open debate.

By contrast, by their very nature, private enterprises cannot be more than ephemeral companions. They may be acquired by another company with different ideas of management and social obligations, and their contracts with customers are easily changed, at the behest of boards and managers who make those decisions in secret. The limited networks of physicians, hospitals, and other health care professionals and facilities under Medicare Advantage can easily change over time, as can be the benefit packages they offer.

It is good that older adults in the United States have a choice between traditional, government-run Medicare and the private Medicare Advantage plans. Ideally, US veterans would be offered the same choice. But policy makers should think twice before writing off traditional, government-run Medicare, which evidently has served the elderly well enough to remain their most popular choice.



By Don McCanne, M.D.

Congress has elected to overpay private Medicare Advantage plans in a scheme to entice Medicare beneficiaries out of the public plan and eventually privatize the full program through premium support (vouchers). With the extra funds the private plans are able to bribe patients with lower premiums and supplementary benefits. So why have two-thirds of Medicare beneficiaries refused to fall for this scheme since it would appear to be a better deal for them (though worse for the taxpayers)? Uwe Reinhardt gives us an astute answer, having to do with trust in our government.

Reinhardt ends with the conclusion that it is good to have the choice between the government program and the private plans, especially since it allows beneficiaries to specifically select the trusted government option. In Canada that choice is not allowed for the same reasons that it should not be allowed here. The private version costs taxpayers more, especially because of extra administrative costs due to the more complex private bureaucracies. The private sector also shamelessly manipulates the system to the detriment of those in the public program, a prime example being the ability to enable private patients to jump the queue, leaving the public patients behind. The private sector also is adept at subjecting the public sector to adverse selection, passing more health care costs onto the taxpayers. And so on.

As an interim measure, what we need to do is demand that Congress provide the same level of funding for the traditional program as they do for the private plans so that premiums and benefits can be comparable (actually better since private plan spending is less efficient). They also need to inflict greater penalties on the private plans for their transgressions in unfairly manipulating the system to their benefit. That is, Congress should provide us with an improved Medicare so that it can become the benchmark for a single payer national health program.