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Dear Dr. Kildare,
I don’t get it. Conservative Democrats like Ben Nelson won’t support a public option because it’s too liberal. So instead they’re now negotiating with liberal Sen. Jay Rockefeller, D.-W. Va., to expand Medicare eligibility. Isn’t “ Medicare for All” the rallying cry of the single-payer left, to whom even liberal Democrats have turned a deaf ear? Isn’t Medicare expansion a more direct threat to health insurers and doctors and hospitals than a public option, because Medicare underprices private health insurance? As a single-payer advocate, I’m delighted by this latest turn of events. But I can’t understand why this compromise would appeal to Nelson & Co.
Pleased But Baffled
Dear Pleased But Baffled, The Medicare expansion under consideration would not let everybody in to Medicare. It would let some people— reportedly those 55 and over—in to Medicare. And it would not let them in free of charge; they would have to pay their way with premiums. The over-55 set are not especially coveted by private health insurers because, compared with younger customers, they are more likely to get sick. Those caveats aside, you’re basically right that a Medicare buy-in is a more pinko proposition than the shriveled public option under consideration right now. If you see the public option as the thin edge of the wedge leading to single-payer, then lowering Medicare eligibility to 55, even if you require a buy-in, is probably a better wedge. A public option might never be permitted to establish market dominance; Medicare, on the other hand, already enjoys a virtual monopoly on customers over 65 and would therefore be well-positioned to expand that monopoly to the AARP’s younger members. An Urban Institute study from 2002 estimated that a Medicare buy-in for people over 55 could potentially capture 68 percent of the market for this age group. Over time, eligibility could drift downward to 45, then 35, then 25, and so on. It’s also easy to imagine that, as Medicare’s constituency grew larger, voters might discard the buy-in requirement, funding the expansion instead through the (more progressive) income tax. Several steps back in the legislative process, the notion that a public option might set premiums at Medicare rates for hospitals and Medicare-plus-5-percent for doctors, which was projected to put public-option premiums 10 percent below those of its private-sector competitors, was rejected by House Speaker Nancy Pelosi because she couldn’t get the votes for it. Too leftist! Too threatening to health insurers, hospitals, and doctors! But unless the Medicare buy-in that’s contemplated created an entirely separate hospital-and-doctor-fee structure (which would likely pose nightmarish difficulties for the administration of Medicare) this “compromise” proposal would translate into lower fees for doctors and hospitals than they could expect under a public plan, albeit for a group of more limited size. Is there a catch? Yes. Two, actually.
The most obvious catch is that the Medicare buy-in does nothing for people under the age of 55. That’s why negotiators are also discussing a Rube Goldberg plan in which the federal Office of Personnel Management would oversee a national nonprofit plan kinda-sorta modeled on the one it manages for Congress, only more expensive. That seems an utter waste of time. (They’re also talking about futher expanding elibility for Medicaid, which would be valuable.)
Catch No. 2 is that even though a Medicare buy-in would probably make lower payments than private insurers to hospitals and doctors, it might not charge lower premiums than private insurers—not if it were self-financed, anyway. That’s because Medicare would be taking in older customers whose health expenditures are typically much higher than customers for private plans representing a broader age population. If, however, the premiums were discounted (i.e., subsidized) for lower-income people, that calculus could change. It doesn’t make much sense to create a Medicare buy-in without subsidies, because the majority of the population between 55 and 65 that currently buys health insurance on the nongroup market earns less than $66,000. (The Urban Institute study cited above assumes generous subsidies.)
There’s a decent chance that Nelson & Co. want a self-financed buy-in without any income-based discounts. That would drastically reduce the population it would likely serve, and it could lead to the same sort of adverse selection problem that hobbled the less-robust version of the public option, with a disproportionately sick population opting for the buy-in, further driving premiums up and making the opt-in even less appealing to any but the most sickly customers. The good news is that the plan on the table reportedly would discount premiums. What if the discounts weren’t big enough? Hmm. Well, if that were to happen, maybe Congress might down the road stabilize the program by … lowering age eligibility?
Please don’t share any of these thoughts with your more conservative friends. A Medicare buy-in poses certain challenges, but for the moment I think liberals should be quietly eager to get tossed into this briar patch.
James Kildare, M.D.
Update, 3:35 p.m.:Adverse selection does appear to be a problem. Politico reports that that the estimated unsubsidized monthly premium for the Medicare buy-in under discussion would be $600 per month. I presume that’s for an individual rather than a family policy. For comparison’s sake, the Congressional Budget Office estimates that seven years from now average monthly nongroup premiums for individual policies will be $483 if health reform passes, and $458 if it doesn’t. So, yeah, the buy-in will require subsidies to be price-competitive.
Update, 4:45 p.m.: Sen. Joe Lieberman says “I’m open to looking at” the Medicare buy-in, “but I want to make sure that we’re not … adding a big additional burden to the Medicare program.” Uh-oh. The swing-voting Republican Sen. Olympia Snowe says she’s against it, and also against Medicaid expansion, which now appears to be off the table. The conservative Democratic Sen. Kent Conrad says he wouldn’t support a buy-in that paid hospitals and doctors the same rates as the rest of Medicare; rates for this group would have to be negotiated separately, which kind of defeats the whole purpose. (Conrad’s idee fixe is that Medicare reimbursement rates are already too low in his home state of North Dakota, a proposition that does not appear to be true.) Why, then, does Democratic Sen. Ben Nelson, who is more conservative than all these people, seem to favor the Medicare buy-in? Maybe because people over 55 never have abortions.