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Competitive Bidding—Bids for a specific package of health services are submitted by competing health plans operating in a unique geographic area, which are then used as a reference point to determine the amount of federal contributions to premiums. An enrollee can pay extra if she chooses a more expensive plan whose bid is above the government’s contribution.
In this paper, the authors advocate implementing a competitive bidding process for Medicare health plans. The authors assert that this type of bidding would serve simultaneously as both a defined-contribution and defined-benefit model and suggest that competitive bidding is a better, more efficient way to establish care pricing in Medicare plans than an administrative pricing system based on historic claims data. They argue that the system would not “crowd out” traditional Medicare and envision a future where both government and private health plans coexist.
Although the authors suggest that implementing competitive bidding would be relatively easy, they advocate close monitoring and regulation during a transitional period to ensure companies do not set prices artificially high and protect beneficiaries facing increases in costs and premiums.
The authors conclude that competitive bidding, as a vehicle for determining prices for Medicare health plans, holds the promise of substantial cost savings while protecting the health care needs of beneficiaries, regardless of the political question of determining the size of the entitlement.
Other papers in this series:
The role of Medicare fee-for-service in inefficient health care delivery, by James C. Capretta
Plan competition and consumer choice in Medicare: The case for premium support, by Joseph Antos