Giineken and Schwartz have an article in the current New England Journal of Medicine looking at the effects of competition in health care and how it affects costs. They looked at the effects of health care exchanges in Switzerland and the Netherlands to see if the competition they provide have reduced costs.
Exchanges are based on economist Alain Enthoven’s concept of managed competition, which aims to establish regulated competitive markets in health insurance, health care purchasing, and health care provision (see diagram ). Exchanges are regulated yet competitive health insurance markets, and they usually function in an environment where individuals are required to purchase health insurance. In the exchanges, insurers offer structured choices, compete on the price and quality of their service, and must accept all applicants. The ACA creates a framework focused on these issues, and some states have begun implementing their own adaptations.
But experience in the Netherlands and Switzerland, where insurance exchanges are part of health care reforms that have been ongoing for some time, provides two cautionary lessons. The first is that competitive insurance markets will not contain costs without reforms of the health care purchasing market. In theory, health insurers should negotiate with health care providers on price, volume, and quality of care. Innovative payment methods should result in the purchasing of efficient care. In the United States, there has been little discussion about strengthening the purchasing market, although the ACA intends to promote provider competition by requiring yearly publishing of standard charges for items and services. Experience from the Netherlands and Switzerland shows that such efforts are not enough. Purchasing-market reforms in those countries are a work in progress, but the results so far in terms of cost containment and quality improvement have been negligible.2,3
Competition is just one of many ways the ACA seeks to lower costs, but for the GOP, it is the primary means by which it hopes to lower costs. The Ryan plan (one of them at least) embraces the use of exchanges. Selling across state line sis also promoted as increasing competition and lowering prices. Yet, as the authors note here, when this theory is put to test, it seems to have minimal to no effect. As the authors point out, the Dutch and Swiss have had some problems with risk-adjusting payments. This may or may not also contribute to failure at cost containment.
Still, the lack of evidence that competition in health care will necessarily reduce costs requires health reform proposals to have a back up plan as a means of ensuring cost containment. Both the ACA and Ryan accomplish this by setting a cap on growth of GDP plus 0.5%. For the ACA, the failure of competition means that the IPAB must make recommendations that will lower costs. These recommendations are not allowed to reduce benefits. As a practical matter, this means reduced payments to providers. The COngress must then vote on the IPAB recommendations, requiring a super-majority to over rule them. Ryan does not address how his cap would be enforced. Given that his plans generally place more of the burden on beneficiaries, most people assume that is what would happen, but we do not know for sure until this is clarified (probably some time after the election).
This is all complicated more by the fact that Romney is the one actually running for president. He will, one assumes, decide how a cap would be enforced. He has criticized the current cuts to Medicare which reduce payments to providers. From this, one might assume that he plans to place the burden of meeting the cap on beneficiaries. However, he is also running on saving Medicare. This suggests that does not intend to further burden beneficiaries, which would require a cut in payments to providers. The campaign could clarify this for us. I hope they do.