The Medicare Advantage plans should have known these cuts were coming and that more of them are likely in the future. The reason for the cuts is that it is too hard to defend a theory of competition between traditional Medicare and private health plans in which tax payers pay the latter more per Medicare beneficiary than they allocate to traditional Medicare. It is really that simple. Given their ability to price-discriminate and to contract selectively, as traditional Medicare cannot, one would hope that the private health plans could thrive even if they had to compete on a truly level playing field.
Uwe ReinhardtPrinceton University
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