NCPA - National Center for Policy Analysis

Competition in Medicare

March 13, 2014

Medicare needs a strong private option to allow for market competition, says James Capretta, a senior fellow at the Ethics and Public Policy Center.

Despite the Obama administration's insistence that the Affordable Care Act (ACA) is based on choice and competition, the law is based on nothing of the sort, as the Department of Health and Human Services (HHS) has gained massive amounts of authority while the individual has been sidelined.

Consistent with this, the administration is trying to do away with the only elements of Medicare that are actually driven by the free market: the Medicare Advantage program and the prescription drug benefit.

  • Medicare Advantage (MA) plans are private insurance options within Medicare through which seniors can elect to receive benefits. The government pays a fixed monthly amount to the plans that provide Medicare services. More than a quarter of Medicare participants are enrolled in MA.
  • MA plans can deliver Medicare benefits for 96 percent of the traditional program's costs. MA HMOs can provide those benefits at 92 percent of traditional costs.
  • But the ACA made large cuts to MA -- the Congressional Budget Office (CBO) placed the number at $150 billion over 10 years. To adjust to these cuts, MA plans will have to scale back coverage and raise premiums, increasing annual costs for enrollees by up to $1,700.

The Medicare drug benefit encourages beneficiaries to control costs and enroll in low-premium, high-value plans.

  • 2014 is the fourth year in a row that premiums have remained flat, at an average of $31 per month. In fact, total program costs are more than 40 percent below original estimates.
  • But a new CBO proposal would significantly limit the ability of drug plans to cut costs, massively increasing costs and resulting in higher premiums and fewer choices.

These Medicare provisions were working well and seniors have been happy with them. The administration should prepare to see a political backlash among older voters in the 2014 midterms.

Source: James C. Capretta, "Medicare's Private Option," National Review, March 6, 2014.


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