So what would Newt Gingrich do to rein in Medicare costs? Today he told Ben Domenech that he likes the idea of premium support — that is, giving seniors a lump sum and having them buy private insurance — but he also likes the idea of making it voluntary:
And then I would go to the insurance industry and say to them, is there a way you could make a premium support option really desirable? Well, it turns out Medicare Advantage has 25% of the market despite the opposition of the bureaucracy. So, if you had a bureaucracy that favored market oriented systems, you might actually get to 50% much faster than you think.
God help us. Here's the problem: Medicare Advantage costs more than traditional Medicare. A recent study suggests that in 2009 (the most recent year available) it added 3.5% to the total cost of Medicare. That's about $17 billion. If Gingrich's enthusiastic bureaucracy managed to double the number of seniors choosing Medicare Advantage, it would cost us an extra $35 billion per year.
And what do we get for that money? A research report by Austin Frakt and others estimates that only about 14 cents out of each dollar goes for additional services. So under Gingrich's plan, Medicare costs would go up by $35 billion, and of that, about $30 billion would be wasted.
I'd like to say that this is just typical Newt, shooting off his mouth about some clever idea without really thinking it through. But it's not. It's part of the continuing conservative infatuation with Medicare Advantage, something that's nothing short of breathtaking considering its gruesome record so far. Then again, maybe it's not so breathtaking. After all, $30 billion in waste to you and me is $30 billion in extra profit to the insurance industry. That's who Newt wants to ask for advice, and as far as they're concerned, Medicare Advantage is already really desirable.
If you want to rein in the growth of Medicare, you'll have to look elsewhere. Premium support models that incorporate competitive bidding might help keep costs down a little bit, but Medicare Advantage won't. It just makes the problem worse — and doubling it will only make a big problem twice as bad.