Why Is Choice a Bad Thing?

Medicare bureaucrats believe seniors have too much choice! Last month the Centers for Medicare and Medicaid Services (CMS) proposed sweeping changes to the Medicare Part D drug program.  Released without fanfare, buried in a 700 page veritable plethora of regulations published in the Federal Register were three significant changes to the Medicare drug program. These proposed regulations include: 1) Any willing pharmacy regulations to prohibit exclusive networks; 2) reducing the number of protected classes of drugs covered in each plan; and 3) reducing the number of drug plans that plan sponsors are allowed to offer in each service region.

Any willing pharmacy regulations prevent plan sponsors from creating exclusive pharmacy networks. The proposed regulations would require drug plans to allow participation by any pharmacy willing to abide by the terms of the “winning” bidder in the network contract. This weakens drug plans’ bargaining power to negotiate the lowest prices from pharmacies competing to be included in a network.

I’d do anything

Over at The Incidental Economist blog, Austin Frakt highlights some academic studies on the effects of reducing the number of protected drug classes (i.e., conditions for which virtually all drugs must be covered by Part D drug plans) and limiting the number of plans sponsors can offer in each service region. He points to one of his own journal articles  which found that allowing drug plans to exclude some drugs at the expense of others increases drug plans’ bargaining power to negotiate lower prices. This is a strategy used by the Department of Veterans Affairs. This is also consistent with an NCPA brief by Alain Enthoven and Kyna Fong that explains “bargaining power.” How this may affect seniors would likely vary by condition.

The rationale behind limiting the number of plans offered in each service region is based on the dubious notion that seniors are confused by too much choice. Seniors purportedly complained that numerous plans made it difficult to identify the best plan. Of course, any given plan that one senior doesn’t prefer and thinks just adds to their confusion may be the plan another seniors decides is the optimal plan.  Basically, the Obama administration thinks the plans offered should reflect only those plans that CMS thinks seniors should have.

Frakt points to various articles in the literature that argue that too much choice can lead to seniors spend more than they should, but also points to literature that finds the over-spending isn’t persistent and that seniors figure out which plans work for them after the first year.

Comments (21)

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  1. Patrick S says:

    Here we go again; the government wants to have one single program that covers everyone. This is bad for the consumers, bad for the providers, bad for the economy, bad for everyone. The good thing about choice is that there is competition to get customers; every provider will find ways to appeal to consumers, being lower price, better quality, etc. If there are only few options out there, the market will operate as an oligopoly making it worse for the consumer and the economy in general.

  2. Jessica C says:

    If too many options are being confusing to seniors, it is the providers who must change how they offer their services not the government to limit the quantity of these providers. These providers should start changing their strategy, finding a way in which they are more appealing to senior and making it easier to understand. If they don’t change quickly, the government might force them to stop offering their service.

    • Walter says:

      “Nine out of 10 are satisfied and 6 in 10 are very satisfied”

      This is from a survey taken to measure Senior satisfaction of Medicare Part D. The whole “being confusing to seniors” is false.

  3. Jeff N says:

    Why this administration acts behind curtains? Every reform that they have gone through during this administration shares this characteristic. It seems that Obama is lying to the American people, saying one thing and doing the opposite. He is following his own personal agenda that that goes against the nation’s interest.

  4. Charles R says:

    This administration that is self-proclaimed as the “most transparent in history” is surely contradicting themselves. Why is this reform, which is going to decrease choice, embedded in a 700 page document? Is gives the sense that they didn’t want it to be a matter of public knowledge until it was late.

    • Walter says:

      “most transparent in history.”

      That is a hilarious statement from the Obama administration.

  5. Devon Herrick says:

    The Medicare Part D drug program has been successful because private firms compete for seniors’ patronage. Had Medicare Part D’s initial plan design been similar to traditional Medicare, I do not believe its expenditures would be as low as they are today.

    However, many administrators within Medicare believe they could do better micromanaging the program. This is a temptation we should avoid. For instance, during Deputy Administrator Blum stopped short of saying the House Energy & Commerce Committee hearing, drug plan sponsors offer too many choices in an attempt to confuse seniors. That is ridiculous. CMS bureaucrats somehow think that they can cull through the redundant plans and help seniors spot the good ones. But, that assumes CMS knows each senior’s preferences — which it doesn’t.

    Research shows that seniors who put an effort into plan selection do quite well. It also shows seniors with cognitive problems do quite well selecting plans, presumably because they have assistance from a loved one.

    Cutting the choice of plans would accomplish nothing other than demonstrate how bureaucracies tend to oversimplify perceived problems and formulate solutions that create bigger problems. That too is already in the academic literature: just read Bureaucracy by the late James Q. Wilson.

  6. DoctorSH says:

    Patients want choice and will pay based on what they perceive as valuable. No third party can make that decision for them.

  7. Thomas says:

    “seniors are confused by too much choice”

    That doesn’t explain why Medicare Part D had very high success ratings among Seniors when it came to choice.

    • Bill B. says:

      “Obama administration thinks the plans offered should reflect only those plans that CMS thinks seniors should have.”

      That can lead to some shady territory.

    • Buddy says:

      If seniors are confused by too much choice, then I am confused by too much government.

  8. Von K. says:

    Besides cutting down the list, the administration must guarantee the quality of choice.

  9. JP Anderson says:

    If seniors chose the correct plan after one year it means that they know what they want of their coverage. There are certain requirements that the seniors ask for, and if they end up choosing the wrong plan, they soon will know that they made a mistake and will find one that meets their needs.

  10. George D says:

    Instead of limiting everyone’s choice, they should start offering assistance to seniors. Provide help to those who don’t know which plan suits them. Finding ways in which the seniors can receive the coverage they need for the price they can afford.

    • Janice Michaud says:

      Yes, that is what insurance agents do, seniors that work with insurance agents get a plan that suits their needs and have someone there to help them when they need it.

    • Dennis Byron says:

      George D

      They do. There are 25,000,000 CMS-certified mostly volunteers working in senior centers around the country. Don’t waste your time with an insurance agent that has an agenda; just go to the nearest senior center.

  11. charlie bond says:

    Hi,
    So if I read this right, the government is allowing the involuntary expansion of pharmacy networks, while allowing the narrowing of all other provider networks . . . And didn’t I just read that Part D was actually working to save health care dollars?

    It seems clear that it is not the seniors who are confused, but the poor bureaucrats.
    Cheers,
    Charlie Bond

  12. Janice Michaud says:

    I work with seniors choosing medicare plans. The thing that confuses and scares them is the threat of their plan being closed or diminished.
    They get letters constantly that are incoherent, a mix of mandated messages that seem to be changing what is covered or warning of an impending cessation of their plan. 60 day mandated notification a payment is late when premiums are owed monthly as an example.
    CMS and all the bureaucrats need to learn to twiddle their thumbs when they have nothing better to do.

  13. Dennis Byron says:

    “The rationale behind limiting the number of plans offered in each service region is based on the dubious notion that seniors are confused by too much choice. Seniors purportedly complained that numerous plans made it difficult to identify the best plan.”

    This is pure far-left-wing nonsense and Jonathan-Gruber senior hating at its most absurd. Only these far left propagandists believe we senior citizens are too stupid to make simple decisions about an inexpensive ($40 a month average) insurance product — a product that many of us get for free and can change every month if we want, many more of us can get highly discounted and can change every month if we want, more of us can change twice a year if we want, and all of us can change yearly. They claim we are stupid even though we have been making irrevocable multiple-thousand-dollar decisions about houses, cars, kids’ educations — and even insurance — for 50 years.

    And what you never read in any of this analysis is that only about 15,000,000 people on Medicare out of 50,000,000 even get Part D. Another 15,000,000 of us get a public Part C health plan that has drug coverage built in (but it is not selected because of the drug plan), about 10,000,000-15,000,000 of us get drug coverage from a former employer or the VA, and the rest choose no drug coverage.