Here's a post from The Incidental Economist.
Posted: 06 Aug 2012 02:00 AM PDT
In JAMA, Zirui Song, David Cutler, and Michael Chernew estimate some of the consequences of the Ryan-Wyden premium support plan for Medicare.
Nationally, in 2009, the benchmark plan under the Ryan-Wyden framework (ie, the second-lowest plan) bid an average of 9% below traditional Medicare costs (traditional Medicare was equivalent to approximately the tenth-lowest bid). Since traditional Medicare is simply another plan option under the Ryan-Wyden plan, a beneficiary in 2009 would have paid an average of $64 per month (9% of $717) in additional premiums to stay in traditional Medicare. Across the United States, 68% of traditional Medicare beneficiaries in 2009 (approximately 24 million beneficiaries) lived in counties in which traditional Medicare spending was greater than the second–least expensive plan and would have paid more to keep their choice of coverage.  Furthermore, more than 90% of MA [Medicare Advantage] beneficiaries (approximately 6.6 million seniors, excluding those dually eligible or in employer plans) would have also paid more for the plan they chose.
Translation: Had it been implemented in 2009, the Ryan-Wyden plan would have cut federal spending on Medicare by at least 9%. If every beneficiary had been enrolled in traditional Medicare in 2009, the estimated savings would have been exactly 9%. But almost one-quarter of beneficiaries were enrolled in a Medicare Advantage plan (pdf), which was paid 14% more than the cost of traditional Medicare at the time. So, under the Ryan-Wyden approach that brings payments to plans down to or below the cost of traditional Medicare, the savings would be higher than 9%.
Of course, holding all else equal, the full plan premiums must be paid by someone. The authors tell us what proportion of beneficiaries would have been stuck with a higher bill: 68% of traditional Medicare enrollees and 90% of MA enrollees. Don’t expect them to be happy.
On the other hand, it’s not likely all else would remain equal. Some beneficiaries would switch plans to avoid higher premiums. Perhaps plans would find ways to economize on costs, become more efficient. That’s the hope (claim) of competitive bidding/premium support advocates anyway.
What’s also true is that the future will not be exactly like 2009, at least under current law.
Affordable Care Act (ACA) reforms to traditional Medicare may change these estimates by moving traditional Medicare toward improved incentives for cost and quality through accountable care organizations, bundled payments, and strengthening primary care. The ACA also aims to slow the growth of traditional Medicare costs by reducing fee increases for some health care institutions. If traditional Medicare costs slow but do not close the 9% gap entirely, as currently projected, millions of beneficiaries will still have to pay more, although less than $64 per month, to maintain their choice of coverage—assuming the benchmark stays the same. However, if the ACA reduces traditional Medicare costs enough so that traditional Medicare becomes the benchmark, beneficiaries would no longer pay more to keep traditional Medicare; instead, MA plans would be costlier than traditional Medicare and require a premium.
That the ACA will make traditional Medicare more efficient and less costly is the hope (claim) of advocates of the law. Of course there is no way to know which advocates — those of a Ryan-Wyden type plan or those in favor of the ACA’s path — are correct about the future. Each is a bold experiment. One just happens to be law and in the process of implementation. The other is in a relatively vague stage of proposal with no certainty of becoming law.
Though I’m supportive of competitive bidding (of a type and with certain safeguards and conditions), I also think we should let the provisions of the ACA play out, to see what happens, with adjustments as warranted. Since few in power, let alone a majority of Congress, advocate running both experiments simultaneously (which is possible — they’re not incompatible), we may get only one or the other. Or we may get none. That is, in fact, precisely what would be achieved by repeal without replacement, a highly plausible political outcome."