Healthcare Policy Leader: Create a Medicare Public Option as an MA Alternative

In a moment in which the Medicare Advantage program has surged in popularity, with more than 54 percent of Medicare beneficiaries now enrolled in Medicare Advantage plans, a broad but also intense debate has emerged around the future of Medicare Advantage, particularly in relation to the traditional Medicare program. The situation is complex, with partisans on all sides and across a spectrum of perspectives, from those who believe that Medicare Advantage has proven to ben a spectacular success, to those who are troubled by the fact that commercial health plans are being paid billions of dollars a year to care for beneficiaries in the nation’s largest public health insurance program.

Writing on Aug. 21 in The New England Journal of Medicine online in the “Sounding Board” op-ed section of that publication, in an article entitled “The Future of Medicare and the Role of Traditional Medicare as Competitor,”  J. Michael McWilliams, M.D., Ph.D., the Warren Alpert Foundation Professor of Health Care Policy, Department of Health Care Policy, Harvard Medical School and a professor of medicine and a practicing internal medicine physician at Brigham and Women's Hospital, parses the complexities—of which there are many.

Dr. McWilliams begins by explaining the background of the rise of the Medicare Advantage program, including its broader and more comprehensive coverage of key benefits that are not covered under traditional Medicare. And then he gets to the core of his subject, by looking at the current moment, writing that “Thus, at this juncture, the core challenge awaiting Congress is how to manage the costs and benefits of a Medicare program that is now more generous. Policymakers will have to be more deliberate in structuring Medicare to uphold desired protections while controlling spending. At the center of this restructuring is the fated choice between accommodating Medicare Advantage as a dominant stand-alone program and fortifying traditional Medicare along with its role in the regulation of Medicare Advantage. That deliberation may be among the most consequential for the Medicare program since its enactment.”

There are numerous aspects and layers to all this, but McWilliams notes fundamentally that “The alternative to making traditional Medicare more competitive is to rely more exclusively on insurer competition within Medicare Advantage and on direct regulation to make Medicare Advantage perform well as a dominant stand-alone program. Although instilling more competition within Medicare Advantage may be a worthy policy goal, policymakers and antitrust authorities in the United States have struggled to make health care markets more competitive,” he notes.

“As for regulating Medicare Advantage without a traditional program, the challenges are not insurmountable,” McWilliams continues. “To control costs and ensure levels of generosity above what traditional Medicare currently offers, benchmarks could be set differently,6,29 administered prices could be imported from traditional Medicare to Medicare Advantage, premiums could be capped, and benefits could be standardized. Stricter measures could be devised to discourage overly restrictive practices. However, attempts to replicate the effects of a competitive public option with explicit regulatory controls present risks. For example, if benchmarks are decoupled from traditional Medicare spending and are instead based on plan bids, they could increase in markets that have little competition, which would act to increase Medicare spending. Various aspects of access, such as network adequacy and the appropriateness of prior authorization practices, are hard to define and monitor.”

One of the big challenges? “To better leverage competition from traditional Medicare would require improvements to traditional Medicare as well as cuts to Medicare Advantage,” Mc Williams notes. “Rebalancing the programs by means of cuts alone would entail a drastic reduction in payment to Medicare Advantage plans — probably 15 to 20% or more — which would result in substantial losses for enrollees.” Ultimately, then, he argues, “[T]he approach must couple an increase in the generosity of traditional Medicare coverage (which increases Medicare Advantage payment) with an offsetting decrease in Medicare Advantage subsidies, which could be fine-tuned to achieve a desirably moderate net reduction in plan payments.”

The answer? McWilliams argues that it will require “increasing the generosity of traditional Medicare”—in other words, creating something comparable to the “public option” that had been discussed during the 2012 and 2016 presidential election cycles. He asserts that creating such an enhanced traditional Medicare program is doable, given certain program changes. “Relying on a public option to help lead Medicare into the future is not without trade-offs. A revitalized traditional Medicare must strike a balance between ensuring an option that is favored by enough beneficiaries and leaving room for private plans to do better for other beneficiaries. Moreover, a more generous traditional program may mean a less expansive Medicare Advantage,” he writes. “Medicare reform will not be easy, but at this point, it cannot be sidestepped. As Medicare Advantage grows, debate must begin. In grappling with the future of Medicare, policymakers would be well served by setting aside polemical characterizations of traditional Medicare and Medicare Advantage and by finding common ground in what these two programs were intended to do together for seniors — compete for them.”