Choice & Competition Can Help Save Medicare
The long-anticipated surge of retiring baby boomers is upon us. The Medicare trustees recently estimated that Medicare Part A (the hospital insurance trust fund) will go bankrupt in 2026, only eight years from now — and three years sooner than they predicted in last year’s report.
At my organization, a private online marketplace for health insurance, consumers are concerned. But their decisions and behavior provide important clues about where policymakers can go from here. For decades the debate in Washington has centered on benefit expansion, benefit reduction, or tax increases. In the real world, consumers are offering a fourth way to preserve Medicare: choice and competition.
Policymakers may not think of Medicare as a haven for shopping, but thanks to technology that is changing. At eHealth, we’ve seen a dramatic surge in shopping among Medicare-eligible Americans.
According to one key metric, seniors are more enthusiastic about our online tools than millennials and other consumers are about Snapchat and Instagram. Our Net Promoter Score (NPS), an objective industry tool that measures the willingness of customers to recommend a company’s products or services, is 91 — a figure described as “almost perfect” by Joel White, President of the Council for Affordable Health Coverage. (Snapchat received a NPS of -6 while Instagram received an NPS of 64.)
Meanwhile, our online prescription drug tool is saving seniors eligible for Medicare more than $500 per year on average in prescription drug costs. We’re proud of these results, but more important are the implications for policymakers and taxpayers. Seniors are passionate about shopping for health care, and when given the power to choose they can force competition and drive down costs.
This should come as welcome news for policymakers contending with serious — and fixed — demographic challenges. As the Wall Street Journal recently reported, the number of retirees to workers has spiked dramatically in recent years. In 2010, there were 21 retirees per 100 workers — a ratio that held steady for three decades. The figure jumped to 25 retirees per 100 workers in 2017. By 2030, only 12 years from now, that ratio will surge to 35 retirees per 100 workers.
At the same time, people are living longer after they reach age 65. In 1965, when Medicare was created, the average person who reached 65 could expect to live an additional 14 years. Today, it’s about 20 years. Life expectancy after 65 is now 84.3 for men and 86.6 for women.
Watching this demographic wave approach is, in part, what prompted warnings from President Bill Clinton’s former Chief of Staff Erskine Bowles and many others. As Bowles said in 2011, “I think it’s clear, if you do simple arithmetic, that the fiscal path that the nation is on is simply not sustainable.” That is more obvious today than ever.
Sadly, Washington is no closer to a solution today than when the demographic bubble became apparent decades ago. In fact, both parties may be farther apart than ever before. Yet, that has not always been the case. By looking to consumers, Congress can recover its lost consensus around choice and competition.
Twenty-five years ago, Alain Enthoven, a health-care consultant to President Jimmy Carter, wrote prophetically:
To offset the expenditure-increasing effects of an aging population and an expanding array of medical technologies, we need to foster a process of continuing productivity improvement and of development of cost-reducing technologies. Only ongoing competition to provide value for money can do this.
Since 1993, leading policymakers from both parties — including former Senators John Breaux (D-LA), Bob Kerry (D-NE), Pete Domenici (R-NM) and current members of Congress including Senator Ron Wyden (D-WA) and House Speaker Paul Ryan (R-WI) — have all embraced Enthoven’s vision and worked to translate his insights into legislation.
Markets are imperfect. But nothing in the history of civilization has done more to make scarce goods and services common and affordable than equipping consumers with choice and buying power. It’s no surprise that two parts of Medicare that are especially popular with seniors, Medicare Advantage and Medicare Part D (the prescription drug benefit), incorporate a significant measure of consumer choice and competition — a fact that has been recognized by people on both sides of the aisle.
A study by the left-leaning Brookings Institution found that Medicare Advantage plans save money and achieve better patient outcomes than traditional Medicare. Technology is helping seniors make smart choices about which plans will best meet their medical and financial needs.
Meanwhile, Medicare Part D actually costs less than anticipated. The right-leaning American Action Forum put it well: “The Medicare Part D program has achieved the rarest of distinctions among federal entitlement programs: it is both highly successful in its mission, and consistently comes in under budget.”
The senior shopping spree is great news for America, and should be motivation to unify a divided Congress around solutions that work.
Scott Flanders is the CEO of eHealth, Inc., a private online marketplace for health insurance.