By Kevin Drum
Still, Medicare Advantage enrollees enjoy extra benefits. The program also provides incentives for HMOs to enter new areas and compete with each other. So it’s not as if the subsidies are being completely wasted.
But it does turn that they’re being mostly wasted. Austin Frakt, a health economist at Boston University, provides the dismal numbers:
My work (with Steve Pizer and Roger Feldman) shows that for each additional dollar spent by the federal government (taxpayers) on the program since 2003, just $0.14 of it can be attributed to additional value (consumer surplus) to beneficiaries….
What do we make of the other $0.86? That goes to the insurance companies but doesn’t come out “the other end” in the form of value to beneficiaries. In part it pays for the additional benefits themselves and in part it is captured as additional insurer profit.
Conversely, standard prescription drug plans provide more than a dollar of benefit for each dollar spent. Roughly speaking, these plans cost taxpayers about 75 cents for each dollar of value they provide.
Bottom line: if healthcare reform cuts back on Medicare Advantage, the effect on retirees would be tiny. Putting even half of the cuts back into standard prescription drug plans would almost certainly make everyone better off except for insurance companies. The full paper is here.
Conservatives are unhappy because liberals keep defending programs that have poor track records, while progressives are unhappy because we’re too busy fending off knife attacks to have a real chance of reforming the delivery of government services. Welcome to the modern world.