How the Affordable Care Act makes its exchanges competitive

Austin Frakt notes that there is one way in which the exchanges envisioned in Ryan-Rivlin would differ from the exchanges envisioned in the Affordable Care Act: The exchanges in the Affordable Care Act are driven by market-based subsidies that reward the plans that do the best job controlling costs. The exchanges in Ryan-Rivlin are not.

A key difference between the exchanges and the Ryan-Rivlin Medicare plan is how vouchers or subsidies would be set. One would use the market, the other would put its faith in a political process. If you don?t know, can you guess which takes which approach? The answer is not what one might guess based on who supports exchanges and who supports the Ryan-Rivlin plan. With respect to setting subsidy levels, the ACA?s exchanges would be more market-based than Ryan-Rivlin voucherized Medicare.

In the exchanges, subsidies will be tied to plans? market prices. Subsidy levels in an exchange will be based on the premium of the second cheapest ?silver? plan. That?s, essentially, competitive bidding. Plans will compete within an exchange, trying to outbid each other to attract enrollees. Subsidies will be tied to those bids, as just explained, and, crucially, to one of the lowest bids...Translation: it?s a very market-based approach, one that builds in protections for consumers (it puts a health care cost-adjusting floor under their out-of-pocket costs) and for taxpayers (subsidies can?t grow any faster than the market dictates).

Now, consider the Ryan-Rivlin plan. As I?ve written before, vouchers in that plan would not be tied to the market. They would not be set by a competitive process. According to my conversation with Rep. Ryan?s staff, they would be controlled by the Secretary of HHS. Translation: it?s an administrative pricing approach. Now, in principle, vouchers are not supposed to rise faster than GDP + 1 percentage point. But, we know from Medicare Advantage (MA) that pledges to keep private plan subsidies to a certain level are hard for politicians to keep. MA subsidies grew to about 14% above FFS Medicare costs.

This seems to bolster the conservative case for the Affordable Care Act.

Source: http://feeds.washingtonpost.com/click.phdo?i=6216fe7d49480e1f738ae36ad4b3f199

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