Health economist: Competitive Medicare Advantage bidding could save gov't billions

Lack of a competitive bidding process in Medicare Advantage costs the government billions in overpayments. But plans to introduce it are probably doomed, according to a New York Times columnist.

Medicare Advantage plans submit bids to the government that reflect their estimated costs for provision of Medicare's standard benefit. The government tries to incentivize lower bids, but that doesn't translate to a true competitive bidding process, writes health economist Austin Frakt. 

Payments are established by comparing plans' bids with a price the government sets--not with other bids. That encourages plans to boost payments by making their enrollees appear sicker than they really are, which they accomplish by including doctors in their networks who tend to more aggressively code diagnoses, he writes. 

In its 2017 budget proposal, the Obama administration put forth a plan for competitive Medicare Advantage bidding. The White House says the policy would save $77 billion over 10 years. 

On the one hand, the policy could increase Medicare premiums in some markets. On the other, it could lead private plans to devise benefits packages attractive to healthier and less costly enrollees. Others argue that shielding traditional Medicare from price competition saves less money and perpetuates a less efficient form of coverage, Frakt writes.

"This explains why competitive bidding--despite its bipartisan pedigree--is so vexing to politicians," Frakt writes. And why, he adds, proposals to introduce is are not likely to succeed. 

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