Like a recurring illness, stalemate looms again over the prospects for settling the issue of payment levels to private plans in Medicare, which now exceed the average per beneficiary cost of traditional fee-for-service Medicare by 13 percent, according to the Medicare Payment Advisory Commission. MedPAC recommends eliminating the differential, which funds extra benefits for private-plan enrollees. House Ways and Means Health Subcommittee chair Pete Stark (D-CA) and most other Democrats agree.

But as always in health care, one guy’s costs are another guy’s revenues. The excess payments are catnip to the plenipotent insurance lobby. Rural Senators Max Baucus (D-MT) and Charles Grassley (R-IA) opposed sharp cuts last year from their insurmountable position atop the Senate Finance Committee, dutifully protecting the interests of constituents who benefit from the Medicare Advantage program’s largesse. Likewise, the NAACP supports the current scheme, which also subsidizes low-income minority beneficiaries. And President Bush has vowed to veto any significant reduction.

In the midst of this partisan impasse, amazingly, a disinterested policy debate broke out last week with the publication of Bob Berenson’s compromise proposal in Health Affairs [1-week free access]. In recognition of Berenson’s stature in the policy community, MedPAC chair Glenn Hackbarth paid him the compliment of a public response in a March 10 interview with CQ HealthBeat’s John Reichard.

Just about everyone -– except those who either want to do away with Medicare altogether or won’t settle for anything but a single-payer system –- agrees that fair competition between traditional Medicare and private plans could bring out the best in both alternatives. Berenson, who was head of private-plan contracting in Medicare in the late 1990s, suggested that the simple payment neutrality recommended by MedPAC overlooks a complex set of local-market variables that could tilt the competition, and that a more nuanced formula is in order.

Hackbarth responded that Berenson’s proposal “doesn’t go far enough to give the program [Medicare] a better deal,” according to Reichard’s report. “Why pay more than it costs traditional Medicare to deliver services, given Medicare’s long-term cost problems?” he asked. “Let’s not throw away these advantages of traditional Medicare. If they [private plans] can do it for less, by golly let’s encourage them. But let’s not break up traditional Medicare, undermine its foundations, for private plans that cost more without improving quality.”

Berenson makes his own case too well to attempt an abbreviated paraphrase here. He takes into account geographic variations in health spending, market-specific differences in health plans’ bargaining power, Medicare’s ability to fix provider reimbursement rates, and Congress’s unwillingness to give Medicare the authority to use money-saving care-management techniques.

More importantly, he recognizes the inevitability of a legislative “food fight” if both sides in this recurring argument insist on sticking to their positions regardless of the consequences. Let’s hope the dialogue keeps moving toward higher ground.