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  • Kaiser Study on Medicare Assumes Seniors Don't Like Lower Prices

    The Kaiser Family Foundation just released a study that grossly misrepresents the premium-support model of Medicare reform and apparently misunderstands normal market dynamics and the differences between efficiency, choice, and higher premiums.

    The Kaiser study assumes that an entire class of Americans—senior citizens—is insensitive to price. In reality, seniors are price sensitive when they are presented with options. Already, 90 percent of retirees can and do choose the private health plans they like, ranging from supplemental insurance to Medicare Advantage and Medicare drug plans. Premium support encourages intense competition that will change premiums and hold down costs. The larger impact is that seniors would have a choice of the health options they want, while creating needed savings for themselves and the federal government.

    Take a simple analogy: Assume that the price of a gallon of gasoline rose from $3 to $300. How much would this affect your driving habits? It is doubtful that you would still buy the same amount of gas every week. Yet that is the economic intuition embodied in the Kaiser study.

    The authors of the Kaiser study assume that zero beneficiaries would switch from traditional Medicare to a cheaper plan, despite cost increases. Part of the gain from competition is that health plans must compete for beneficiaries in order to retain or gain market share. They have to secure high satisfaction, as they do today, for example, in Medicare Part D and Medicare Advantage. To create a scenario that simply ignores the gains of market competition grossly misrepresents the economic impact of any consumer-driven market, including a health care market with premium support. The study’s headline is that 53 percent of enrollees in traditional Medicare would pay more, but within the study, when benificiaries respond to higher premiums, the number falls to as low as 33 percent.

    The Kaiser study is counter-intuitive. In an intensely competitive market driven by consumer choice, the result would be higher patient satisfaction and cost control. Instead, the Kaiser study assumes that seniors would stay put in traditional Medicare despite the availability of cheaper, more efficient health care options.

    Curiously, based on the authors’ logic, the more efficient and cheaper an alternative health plan, the worse off Medicare beneficiaries would be. If plans could somehow manage to save 25 percent compared to current Medicare, Kaiser would report that 96 percent of beneficiaries in traditional Medicare would be worse off. By this logic, people would be worse off when market competition drives down costs—if they continued paying more for traditional Medicare instead of picking the new and less expensive options.

    Commenting on the Kaiser study, Joe Antos of American Enterprise Institute adds:

    Health plans and providers would also respond to the shift to premium support. Knowing that the government was no longer paying an unlimited subsidy, they would compete for customers by cutting out waste, getting smarter about how to provide the right care at the right time, and reducing premiums.

    It is one of the virtues of a premium-support policy that beneficiaries would be directly empowered to make cost-effective decisions, and providers would strive to make those decisions attractive.

    The Kaiser study also ignores any potential for efficiency gains from competition in a premium-support program. Sarah Kliff of The Washington Post notes that the study “does not capture how private Medicare plans would react to that new market.” Likewise, former Office of Management and Budget official James Capretta states, “This defies commonsense and experience.”

    Too many Washington analysts often assume that efficiency gains and cost control will result from price controls or regulatory restrictions (even though they distort the markets, increase inefficiencies, and shift costs), but when discussing market competition—the real mechanism that drives efficiency and controls costs—they say that the effects are “uncertain.”

    Assuming that seniors will not make a choice not only misrepresents premium support but also underestimates the ability of seniors everywhere to make good decisions.

    Posted in Obamacare [slideshow_deploy]

    4 Responses to Kaiser Study on Medicare Assumes Seniors Don't Like Lower Prices

    1. It is easy to run up big bills, If you pass your debt onto others.

    2. MedicareRightsCenter says:

      Mr. Gonshorowski claims that an “intensely competitive” private market under a premium support model is the key to bringing down costs in Medicare. Where is the proof? The facts tell us that Medicare, as it is today, is more successful than private plans in controlling costs. Recent estimates show that private insurance spending is expected to grow at rates of five percent per enrollee over the next ten years, while Medicare is expected to grow at 3.1 percent. The focus should be on controlling health care spending overall. Achieve this, and costs will come down for Medicare and the private insurance market, without shifting the burden onto people with Medicare using something like premium support.

    3. Dennis Byron says:


      The Kaiser study is even worse research and more deceitfully misleading than you (and I think any of your references) are pointing out.

      To get strawman numbers for comparison Kaiser uses the 2010 Part C Medicare bids by various insurers in all the counties in the U.S. but assumes that
      – IF Wyden-Ryan (or fill in your favorite defined-contributon Medicare Reform proposal from the last 20 years, Democrat or Replublican) had been the law in 2010,
      – THEN these insurers would have miraculously bid 5% less than they actually did bid.

      This sets the zero-cost Medicare plan in each county 5% less than it would have actually been under Wyden-Ryan and totally distorts the difference between that plan's premium (zero) and the third, fourth, fifth, etc. plans (which becomes that plan's premium, depending on how Part B is handled). The net result are hugely inflated estimates of what seniors would have spent

      – IF they had selected the more expensive plans
      – which you correctly point out, we seniors would not do since we did not just fall off the turnip truck

    4. aged care management says:

      A residential aged care is best solution for this problem. Your parents will get all facilities in these home help. The main important thing is that your parents will not feel lonely as they can find company of many other people of their same age.

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