Guest authored by Jonathan
Keisling, Health Care Policy Analyst at AAF
Previous editions
of the Dish detailed
the obvious problems with Medicare buy-in proposals. In this edition, I take a
different line. Let’s assume that there was a popular public option in the
individual marketplace for people between the ages of 50 and 64 for little to
no taxpayer cost. Yes, it’s a bit of a fantasy-land assumption, but it’s a
worthwhile thought experiment to consider the market dynamics that would result
from such a policy.
If such a plan were popular, it would be in large part because of its
competitive premiums, made possible by Medicare payment rates that are often
substantially lower than private rates. One study
estimates that private payers paid 241 percent of Medicare rates on average in
2017, while the Congressional Budget Office estimated
private payers’ payments were 189 percent of Medicare for inpatient expenses in
2013.
Medicare might pay significantly less per treatment, but the population for
this Medicare buy-in is older and thus costlier on average. Therefore, these
reduced rates would need to be sufficiently low to overcome the adverse
selection that comes from such a risk pool while maintaining a competitive
premium.
Furthermore, in our assumed scenario, a large group of older individuals have
moved out of the individual market and into a Medicare-type program. For a
reference point, in 2016, the last year these numbers were available, over a
quarter of individual market enrollees were older than 55, and nearly half of
individual market enrollments were made up of those over 45. Such a departure
of older individuals from the individual market risk pool would leave it
younger, which would place significant downward pressure on private-insurance
premiums.
That same large group of older people, however, would now be covered by
insurance that reimburses providers at the significantly reduced rates
stipulated by Medicare, placing more pressure on providers to negotiate higher
rates with private insurers to offset the loss in income. Such a shift would
place upward pressure on individual market premiums. With providers reimbursed
by a larger proportion of Medicare rates, they would also be incentivized to
seek out more private contracts, take on fewer Medicare patients, or curtail
the services they offer to Medicare patients.
What would be gained in this scenario? There would be a smaller individual
market with a healthier risk pool, yes, but not necessarily lower premiums for
these people. It doesn’t look like this would be a win for patients currently
enrolled in Medicare either, as providers would be incentivized to limit their
services to them. And I’ve only assumed that the premium offered by the
expansion is competitive with plans of similar coverage, not the least
expensive plan, so it would not be right to also assume that the number of
insured would increase—an objective of buy-in proponents.
In short, there’s no way a Medicare expansion bill insures more people without
costing more money. Government intervention in this way would set off a domino
effect of cost shifting that would leave few people untouched.
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