Urban Institute
September 2016
Designing a Medicare Buy-In and a Public Plan Marketplace Option
By Linda J. Blumberg and John Holahan
Medicare is an attractive basis for developing an insurance alternative (either a direct buy-in or a public option based in some way on Medicare rates) because the program generally has lower provider payment rates and lower administrative costs than private insurers. However, Medicare's structure and cost-sharing requirements are different from private insurers' as well. A Medicare-related proposal could provide more plan choice for those eligible, which would have a significant effect where few or even only one insurer offers coverage in the nongroup insurance market. Depending upon how the proposal is structured, it could reduce costs for younger adults in the private insurance market as older adults leave the risk pool. However, designing such programs raises myriad issues, each with specific implications for costs and benefits to different age groups.
Medicare Buy-In for 55- to 64-Year-Olds
We assume that a Medicare buy-in option would offer enrollees the same covered benefits and cost-sharing structures offered to current Medicare beneficiaries. Even so, a buy-in directly into the existing Medicare options would lead to questions necessitating policy decisions:
* Would potential enrollees have the choice of traditional Medicare, Medicare Advantage, or both?
* Would eligibles be able to choose between a Medicare option and Marketplace-qualified health plans for which they are currently eligible, or would Medicare be their only option outside of employer-sponsored insurance?
* Would enrollees be allowed to make separate purchase decisions for Medicare Parts A, B, and D, or would they have to purchase all if they purchase any? How will consumers respond to offers of coverage that, unlike private insurance options, have no out-of-pocket maximum? Would Medigap or some other supplemental plans be available to the 55- to 64-year-olds?
* How would the unsubsidized cost of coverage be determined? For example, what premium would be charged to individuals with high incomes? Would 55- to 64-year-olds be charged the same premiums as those age 65 and older, even though the premiums would not reflect the cost of coverage for those enrolled? Or would actuaries set premiums based on the benefits provided and cost-sharing requirements for each component? Would the high income surcharges in the current Medicare program apply to the buy-in population?
* Assuming that 55- to 64-year-old enrollees would not pay the same premiums as current-law Medicare enrollees, would premiums reflect the health care costs of only the 55- to 64-year- olds enrolling? Or would premiums be set to reflect enrollees' health care costs being shared by others? For example, their costs could be shared with other nongroup market enrollees or perhaps with current-law Medicare enrollees, but that would require the development of a mechanism for achieving it.
* Would the 55- to 64-year-olds buying in to Medicare be eligible for financial assistance similar to that for Medicare beneficiaries today (e.g., 75 percent of Medicare Part B costs for all but the high-income beneficiaries? Would they be eligible for ACA-like financial assistance, advanced premium tax credits and cost-sharing reductions? Or would no financial assistance be offered at all? If subsidies are provided, how would they be structured? Would actuarial differences between Medicare and Marketplace silver coverage be taken into account, affecting both advanced premium tax credits and cost-sharing reductions?
* Would 55 to 64 year olds with access to an affordable employer insurance plan be permitted to enroll in a Medicare buy-in option?
A Public Option for All Age Groups
A public option is a qualified health plan that would be sold through the ACA's government-created Marketplaces (either federal or state). The public option would bear health insurance risk like other insurers, complying with the ACA's insurance reforms (e.g., modified community rating, guaranteed issue, and essential health benefits) and offering coverage in the same actuarial value tiers.
A public option avoids complexities associated with a Medicare buy-in for 55- to 64-year-olds. Because the option would be structured and operated in much the same way as any other Marketplace-qualified health plan, it would not have different actuarial values, cost-sharing structures, or premium structures than other Marketplace options. The appropriateness of applying a Marketplace subsidy structure to a Medicare product would not be an issue, and risk-sharing questions across different age groups would not arise. Yet several design decisions would remain:
* How would provider payment rates be set? Would they be set consistent with Medicare rates, set consistent with Medicare rates plus some percentage, or based on some other fee schedule? Many states have self-insured plans for their employees; this is another potential platform for creating a public option offered in a state Marketplace.
* If rates are set at the Medicare level (or at some other level that falls below those paid by private insurers), what leverage would the plan have to ensure sufficient provider participation? How does a state's leverage compare with that of the federal government in this respect?
* Should public options be set up in all geographic areas or only those with high premiums, high premium growth, or otherwise weak insurer or provider competition? If the latter, who will judge appropriate locales, and by what metric will an area's appropriateness be assessed?
From the Summary
Regardless of the approach taken, providers are likely to resist new insurance options that may move more patients into plans paying lower rates. While this is to be expected, it highlights the perpetual quandary of health care cost containment. Health care spending and its growth cannot be reduced without either paying less, on average, per unit of service rendered or reducing the quantity of services provided. No matter the strategy for containing costs, achieving that goal will take money out of the pockets of providers. To protect providers financially means abdicating cost-containment efforts of any type.
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Comment by Don McCanne
There is considerable enthusiasm for expanding on the advances of the Affordable Care Act by adding a Medicare buy-in for those 55 to 64, and by adding a public option - an insurance program run by the government competing with private health plans. What is lacking in this discussion is a precise description of either proposal considering that there are a multitude of policy options that must be decided on in order to construct these programs.
In this Urban Institute paper, Linda Blumberg and John Holahan discuss some of the design options, and there are many more. Each option has its own advantages and disadvantages, so it is inevitable that the eventual design would forge a compromise between benefits and deficiencies. Building these two programs on top of our highly fragmented financing infrastructure inevitably perpetuates inefficiencies.
Each program would require an act of Congress. We need only to look at the insurance industry influence in the legislative process that developed the designs for the private insurance exchanges under ACA, for the Part D Medicare drug program, for the private Medicare Advantage plans, for the privatization of the Medicaid programs, for the previous public option proposals that never got off the ground, and for the co-op model that is failing in the marketplaces, and it will be obvious that the Medicare buy-in and public option will be designed to maximize the leverage of the private insurance industry at a cost to potential enrollees and taxpayers. The insurers will introduce features that are designed to make public programs noncompetitive or even cause them to fail.
When you hear people advocate for a Medicare buy-in or for the public option - and those people are everywhere - demand that they show you their model that was distilled from the multitude of policy options. (Be sure to read the Blumberg and Holahan paper so that you understand at least some of the issues.) Without such a model, the design will default to the private insurers.
Once advocates present their definitive model then analyze it to see how well it meets our reform goals. Will it ensure that everyone is covered? (No) Will it slow the increase in health care costs? (No) Will it ensure that everyone has free choice of health care professionals and institutions? (No) Will it remove financial barriers to care? (No) Will it fill in all of the gaps in coverage of our traditional Medicare program? (No)
Efforts to enact a single payer national health program are rejected because the program supposedly is not politically feasible. Does anyone really believe that a Medicare buy-in and a public option would be politically feasible in a Congress dominated by conservatives and neoliberals? It's not the goal of a single payer model that needs to be changed; it's the politics. That takes work. A lot of it.
