Using Medicare Advantage to Gain Political Advantage

Politico's report on the Capitol Hill squabble over Medicare Advantage cuts reveals what happens when the government gets involved in the provision of medical care: Health care decisions become political decisions, and subject to political fights. 

Here's the backstory: From the very beginning the Obama administration has argued that private providers operating in the Medicare Advantage program are overpaid, and that saving money through health reform would require the Center for Medicare and Medicaid Services, which manages those payments, to cut the reimbursements. 

Republicans warned that cutting payments would cut service quality. But ObamaCare pared back those payments anyway, calling for bonus payments to be made only to providers who ranked either a four or a five on a five star scale. 

Would that hurt seniors' health care quality? The administration may have decided it didn't want to find out quite yet, so it started a large scale Medicare pilot program that extended the program's bonus payments to providers who didn't meet ObamaCare's quality standards. In other words, the administration decided to pay more to providers not rated high quality. A lot more. At $8 billion, the pilot dwarfs all other Medicare demos since 1995 and offset about 70 percent of the planned cuts nationwide. 

The administration claimed the pilot program was designed to further test the effects of the new bonus payment system. But when the Government Accountability Office performed a review earlier this year, it called shenanigans: "The design of the demonstration precludes a credible evaluation of its effectiveness in achieving (the administration's) stated research goal," a GAO report said. 

In a separate wrinkle, an August study in the Journal of the American Medical Association found that while Medicare Advantage payments are indeed higher than in traditional Medicare, it turns out that when one makes true apples-to-apples comparisons of the plans on offer, the program's private providers are able to offer equal value plans quite a bit cheaper than traditional Medicare. The authors note that to the extent that the savings represent increased efficiency, the results suggest that there are better, cheaper ways to provide traditional Medicare. 

So now we are in a funny situation: The same administration that spent a lot of time arguing that Medicare Advantage providers are overpaid is now fighting to keep higher payments to Medicare Advantage providers. And the Republicans who warned that payment cuts would hurt quality are arguing that the administration is ducking responsibility by refusing to make the cuts. 

This started as a wonky policy debate, but what happened was politics. And it is what inevitably happens when the public sector intrudes into the private sector, and when price controls substitute for cost controls. 

It is almost certainly true that quality suffers when reimbursement rates are reduced. It is also appears to be true that competition amongst private providers in Medicare Advantage is leading to efficiencies that aren't present in traditional Medicare, which we should probably take as a lesson. It is also often the case that when the government pays more for something, it spends more, and when it pays less for something, it spends less. But what all this really reveals is the folly of trying to control health spending through government-designed payment schemes. 

Should the federal government pay Medicare Advantage providers more? Less? Or perhaps some complex mix based on quality measures? How about this: Maybe the federal government shouldn't be in the business of deciding precisely how much to pay private health providers at all.