A competitive bidding approach to Medicare reform

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Article Highlights

  • Competitive bidding could save big money for Medicare.

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  • Authors envision a Medicare future where government and private plans could coexist.

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  • Competitive bidding isn't the only necessary Medicare reform, but it is essential.

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Competitive Bidding—Bids for a specific package of health services are submitted by competing health plans operating in a unique geographic area, which are then used as a reference point to determine the amount of federal contributions to premiums. An enrollee can pay extra if she chooses a more expensive plan whose bid is above the government’s contribution.
 
In this paper, the authors advocate implementing a competitive bidding process for Medicare health plans. The authors assert that this type of bidding would serve simultaneously as both a defined-contribution and defined-benefit model and suggest that competitive bidding is a better, more efficient way to establish care pricing in Medicare plans than an administrative pricing system based on historic claims data. They argue that the system would not “crowd out” traditional Medicare and envision a future where both government and private health plans coexist.

Although the authors suggest that implementing competitive bidding would be relatively easy, they advocate close monitoring and regulation during a transitional period to ensure companies do not set prices artificially high and protect beneficiaries facing increases in costs and premiums.

The authors conclude that competitive bidding, as a vehicle for determining prices for Medicare health plans, holds the promise of substantial cost savings while protecting the health care needs of beneficiaries, regardless of the political question of determining the size of the entitlement.

Other papers in this series:

The role of Medicare fee-for-service in inefficient health care delivery, by James C. Capretta
Plan competition and consumer choice in Medicare: The case for premium support, by Joseph Antos

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About the Author

 

Roger
Feldman
  • American Enterprise Institute (AEI) adjunct scholar Roger Feldman is the Blue Cross Professor of Health Insurance and Professor of Economics at the University of Minnesota, where he specializes in applying economic theory to health services research. He is currently a member of the Congressional Budget Office’s Panel of Health Advisers and consults for various federal and state agencies on health care–related matters.

    Previously, he served on the senior staff of the President’s Council of Economic Advisers. From 1988 to 1992, he directed one of the four national research centers sponsored by the Centers for Medicare and Medicaid Services (CMS) and has advised CMS on the design of a demonstration of competitive bidding for Medicare health plans. At AEI, Feldman’s research focuses on Medicare reform, competition in health care, and health insurance markets.

    Feldman holds a Ph.D. in economics from the University of Rochester. He obtained an M.S. in economics at the London School of Economics, where he was a Marshall Scholar, and a B.S. from the University of Wisconsin-Madison.

  • Phone: (612) 624-5669
    Email: feldm002@umn.edu

 

Bryan E.
Dowd
  • American Enterprise Institute (AEI) adjunct scholar Bryan Dowd is the Mayo Professor of Public Health and the director of graduate programs in health services research and policy at the School of Public Health at the University of Minnesota. His work at AEI focuses on the economics of health care policy, Medicare reform, and health insurance markets.

    A health economist with a Ph.D. in public policy analysis from the University of Pennsylvania, Dowd also has an M.S. in urban administration from Georgia State and a B.A. in architecture from the Georgia Institute of Technology.

  • Phone: (612) 624-5468
    Email: dowdx001@umn.edu

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