A Question No One's Asking About The Drug Plan

There is an emperor-has-no-clothes question that none of the Medicare reform supporters is seriously asking: Will private health insurance companies actually choose to participate in the Medicare program by offering stand-alone prescription drug coverage in 2006 or comprehensive health insurance coverage in 2010?

For those drafting the Medicare reform plan the question wasn’t so much “whether” insurers would compete, but “how.”

But if private sector insurers decline to participate, then there is no competition and no possibility of moving seniors out of the government-run Medicare program, which is one of the top goals of the Republican backers.

Take the prescription drug benefit, slated to begin in 2006. The idea is that private sector insurers will compete to offer seniors stand-alone prescription drug coverage. But that product isn’t available today. A few insurers have tried to offer it in the past, but they always lost money.

Reformers are aware that this is a possibility and so decided to provide subsidies to companies to bribe them to participate. In addition, if at least two private insurers don’t participate in a given region, the government will provide its own back-up plan. Since it is doubtful that insurers will offer this type of insurance, the government plan will likely be the only plan.

However, the biggest policy issue for conservatives is the “premium support” plan starting in 2010 in selected cities, in which the government provides a set amount of money and seniors can use it either to join a private sector plan or to remain in traditional Medicare.

The success of the competitive model and the willingness of insurers to participate all depend on how much flexibility insurers have to price their policies and respond to market conditions. But the legislation appears to try to build markets from the top down, and in the process creates a whole new terminology, including “blended benchmarks” and “risk corridors.”

Dr. Robert Moffit of the Heritage Foundation had a suggestion: Simply take the language that created the Federal Employee Health Benefits Program (FEHBP)-which is often cited as the model for creating competition among health insurers-and insert it in the Medicare bill. At least we would be building on a model that we know works. But that suggestion was also ignored.

It should be acknowledged that the reformers’ goal of creating competition in Medicare is good. The question is whether the legislation matches the intentions. At this writing the final language is still being drafted, but from what we know we have little reason to be optimistic.