Interesting article from Uwe Reinhard, an economics professor at Princeton University. Historically, I looked at the average bid prices of MA plans generally (98% in 2012) and HMO’s more specifically (95% in 2012). There is a table near the end of the article which illustrates the bid prices both overall and by plan (HMO, PPO, PFFS, etc). These numbers indicate that MA plans do, in fact, deliver Part A and Part B benefits at a lower cost than traditional Medicare (especially HMO’s).
The article looks at the Ryan plan of competitive bidding and based on the way that MA plans bid A & B, it appears that there would be some savings to taxpayers to competitively bid the traditional Medicare services. The authors of the study did not enthusiastically endores the Ryan plan, however. The study implied a 9% savings in Medicare costs (the Ryan plan would select the 2nd lowest bid as the benchmark for each county in the United States) over the hypothetical bid from Traditional Medicare. The difference in cost could be attributable to (1) efficiencies in the private system, (2) better risk selection (which would not a sustainable competitive advantage or (3) differences with respect to Indirect Medical Education payments which Traditional Medicare explicitly makes. Therefore, it’s open to debate why the private bids are lower, but they are most certainly lower than traditional Medicare.
In the existing MA payment system, the benefits of a lower bid accrue mostly to the Medicare beneficiary. In fact, 75% of the difference between the MA plans A/B bid goes to the MEDICARE BENEFICIARY and only 25% accrues to the tax payer. In the Ryan plan, the difference almost entirely accrues to the taxpayer and the Medicare beneficiary would pay the difference between the 2nd lowest bid and the plan which the Medicare beneficiary chooses. In all cases, traditional Medicare is a much higher cost to the beneficiary.