As Senate and House Committee versions of health reform move toward unified legislation and floor votes, the most complex political challenge is how to resolve the “public option” controversy.  While one would have thought weightier issues such as the shape of Medicare reform, the taxation required to support coverage subsidies, or the presence or absence of mandates would have been pivotal in this debate, the seemingly peripheral issue of a Medicare-like “public option” might be the hill on which health reform dies.

The reasons are almost completely political.  The Democratic base wants to end private health insurance.  Single payer advocates view the public option as a down payment on an entirely public health financing system. Public option advocates believe that the plan’s bargaining power will drive private insurers out of business.  (I’ve argued in a previous blog posting that, without fully understanding what they are doing, these single payer advocates are probably right.)

Moderate Democrats, who will need independent and some Republican votes to be re-elected next year, cannot afford to be perceived as advocating a further expansion of government influence.  After deeply unpopular partial nationalizations of our banking and auto industries, public support for further expansion of government power appears to be waning.  Republicans appear ready to capitalize on the growing backlash against deficits and growing government power in the coming Congressional election cycle. The Varying Flavors Of The Public Option

In reality, no one has a clear idea how a new public option would affect health insurance markets since so much depends on payment strategy.  Hard core House advocates have advocated a Medicare “cram down”- forcing providers to accept Medicare rates for the public plan as a condition of continuing to participate in Medicare. The cramdown would trigger a tsunami of cost shifting onto private insurance, frantic rebasing of private insurance provider contracts, and drowning of marginally profitable hospitals and physicians.  Providers facing a cramdown will quickly add their thus-far-silent voices to the crescendo of doubt or outright opposition to any final legislation.   

More cautious advocates of a public option rely on negotiated rates, or some multiple of Medicare payment, and voluntary physician and hospital enrollment at those rates.

No one knows if the networks that result from negotiated rates will be robust enough to sustain public plan enrollment.  The “co-operatives” advocated by some moderates are unlikely to have any meaningful effect either on coverage or cost.  Those who advocate a “trigger” leading to state sponsored public plans should be sobered by the fact that states that already have such plans, like Washington, are eviscerating their funding as we speak, leaving safety net providers gasping.

The Solution: Voluntary Early Enrollment In Medicare 

The solution to the public option conundrum is so obvious that it’s striking how little discussion there is of it: encourage voluntary early enrollment in Medicare. Unlike the public option, voluntary Medicare buy-in has a significant health policy history.  John Kerry included it in his health reform proposals in 2004.  Bill Clinton had a more modest proposal (voluntary buy-in after age 62) in his first three budgets.  Medicare analysts Marilyn Moon and Christine Cassel have long advocated this approach.  

If one is thinking strategically, the most worrisome segment of the uninsured is the 11.3 million aged 45-64,  who were the fastest growing age cohort of uncovered folk from 2007-2008.   It is one thing to be 22 and immortal and uncovered; it is quite another to be a 52 year old diabetic widow with hypertension, not disabled but thirteen years shy of Medicare and uncovered. The health system and society’s biggest risks among the uncovered are its oldest members.  It is these older uninsured people who generate the largest hospital bills, contributing disproportionately to hospitals’ uncompensated care burden.

How It Would Work 

We already have a public plan for older Americans. Let’s simply lower the Medicare eligibility age, and encourage the sickest baby boomers voluntarily to join Medicare earlier than age 65.   We should waive the two-year wait to enroll in Medicare after obtaining Social Security disability coverage.  At the same time, we should let the non-disabled enroll in Medicare after 55 at the program’s estimated actuarial cost.

Employers could fund the premiums at Medicare’s cost for their 55-plus employees.   This would have the benefit of lowering the average age and morbidity burden of their remaining privately insured group, and reduce their overall health insurance costs.   Individuals with resources could pay their own premiums, which would be substantially cheaper than the individual and small group rates for their age. Those without the means could receive Medicare subsidy help on a sliding scale based on income. Not all of the newly enrolled will leave private markets; they will have the same choice of traditional vs. Medicare Advantage plans that present beneficiaries do.

State And Federal Budgetary Benefits 

Money for these subsidies is already included in reform legislation in the form of funding for newly eligible Medicaid adults with incomes below 133% of poverty. A lot of lower income boomers would sooner kill themselves than enroll in Medicaid in any event and will blow off individual mandate penalties, remaining uncovered.  Moving the older segment of this group into Medicare would alleviate some of the states’ feared future burden of increased Medicaid spending.

In addition to the prospect of a rapid setup, voluntary Medicare buy-in carries with it scorable out year Medicare savings. In 2007, McWilliams and colleagues reported that uninsured people with previous chronic conditions who enroll in Medicare not only have higher Medicare costs at enrollment, but remain sicker than their age peers as long as seven years after enrollment.  This is intuitively obvious; those who cannot afford medication for disease like hypertension, diabetes, asthma and other controllable conditions will be far worse off than their covered age peers. (See also the article by Andrew Wilper and coauthors, published today on the Health Affairs Web site, finding that undiagnosed and uncontrolled chronic illness, which is common among insured people, is even more frequent among the uninsured.)

Unlike the public option, the impact of voluntary Medicare buy-in on private health insurance markets would likely be manageable.  One could expect millions (perhaps 3-5 million) but not tens of millions of takers. The inflow of additional Medicare lives would strengthen Medicare’s bargaining power with providers without triggering a wave of cost shifting or a ruinous rebasing of private insurance rates. And, as mentioned earlier, those with satisfactory private plans could remain enrolled through Medicare Advantage.

Medicare could take advantage of the additional group of chronically ill older adults to strengthen its chronic care management capabilities.  The “medical home” and disease management pilots proposed in health reform legislation would have a lot of new targets; the highest and best use of these new care models will be to deal with the previously unmanaged chronic conditions in the early Medicare enrollment population, as well as those already enrolled through dual eligibility with Medicaid.  Strengthening Medicare’s primary care compensation generally (by far more than just 6-8%) would also be an essential correlate to letting a large new high-risk population into Medicare.

For conservatives seeking to draw the line at no further expansion of public coverage, this solution would not pass political muster. Many of these folks disagree that we have a coverage problem now.   Hard core “progressives” won’t let go of the single payer “down payment”, even if it has no chance of passing the Senate.  Neither of these groups will provide the swing votes necessary for final passage in any event.

However, for moderates of both parties seeking to cover the high risk segment of the uninsured population with minimum disruption quickly (e.g., without a 3-5 year set up time), early Medicare buy-in would be a much faster,  higher impact alternative to the present, speculative alternatives, such as co-ops or state plans triggered by mysterious future events, etc. It would also be cheaper than subsidizing private insurance for the same population, saving crucial subsidy dollars and reducing the tax burden otherwise required.

Maybe it’s too simple a solution to be practical in the present superheated political climate.  However, leveraging the public plan we already have might provide a way out of a seemingly intractable political problem that might otherwise crater health reform in 2009.  It solves numerous problems: speed to results, reducing disruption to markets,  affordability, and  a contribution to bending the Medicare cost curve when the boomers flood the program over the next decade.  Voluntary Medicare buy-in is worth considering.

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