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Hiding In Plain Sight: Using Medicare To Solve The ‘Public Option’ Conundrum



October 20th, 2009

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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1 Trackback for “Hiding In Plain Sight: Using Medicare To Solve The ‘Public Option’ Conundrum”

  1. Big Government » Blog Archive » How the Media Has Failed America on Healthcare Reform–Part I
    October 27th, 2009 at 3:41 pm

5 Responses to “Hiding In Plain Sight: Using Medicare To Solve The ‘Public Option’ Conundrum”

  1. fredericjones Says:

    Diabetes Care and expanded Medicare coverage

    More than 44 million Americans will have diabetes within 25 years under current trends, and the annual cost of caring for them will triple to $336 billion in constant 2007 dollars, researchers said. Without significant changes in public or private strategies, this population and cost growth are expected to add a significant strain to an overburdened healthcare system.

    Currently, some 24 million Americans are living with diabetes and this represents a great economic burden for the country and for government programs like Medicare. The average cost of treating diabetes in newly diagnosed people is substantially different from the costs of treating someone who has lived with diabetes for 20 or 30 or 40 years and is suffering from micro vascular or cardiovascular complications.

    For that population, evidence-based protocols are available that could assure best practices. Moreover, many of our free clinic patients are in the age group of 55 to 64 that is being considered for coverage under an expanded Medicare program. This would enable these patients to get a head start in preventing the costly complications of this disease.
    I am in my 26th year of serving the indigent in a free clinic setting. Along with a superb nurse practitioner, and 3 retired RNs, we hold regular metabolic clinics to manage insulin dependent diabetics, patients with resistant hypertension and dyslipidemia.
    We can treat the usual Type 2 diabetic with 3 generic drugs for $12 per month with excellent control of A1C, BP and lipids! In addition, evidence based guidelines allow most physicians to add insulin which needed in these same settings without referrals to the already short supply of diabetes specialists.

    Frederic G Jones, Sr. MD, FACP, FACC
    140 The Pinnacle, Sapphire NC 28774
    twitty@citcom.net

  2. ershaffer Says:

    Cramdown? Voluntary enrollment in an insurance plan (even Medicare) is better than a universal program? Offering voluntary enrollment in Medicare to the 2nd sickest group in the US – people age 55-64 – would be more cost-efficient than offering a similar choice to all age groups? (The original Baucus proposal of Jan. 2009 would have automatically covered this age group in Medicare; it did not disappear due to opposition from “hard core” members of Congress, whatever that is supposed to insinuate.) Any health reform will strain the federal budget unless it is financed; CBO says the public option would reduce the deficit. Where is the well-informed analysis on this timely topic?

  3. brucequinn Says:

    Having worked as a regional Medicare medical director for several years, I see many advantages to this plan, and it has indeed circulated for some years. The crisis facing a self-employed 55 year old in getting insurance is awful. That said, there would be some concern about merely “enrolling at actuarial cost.” If a lot of people with $50,000 expenses enrolled at $5000 age-average cost, it would be a train wreck pretty fast.

    The gap between Medicare payments and private insurance is not enormous for many services. Most of us with private insurance see physician office visit bills for $200 that our insurance settles for $70 insurance, $20 copay, all the time. The net payment from Medicare is only a moderate percentage in variance to the private insurance rate, at least for many physician services and when compared to large insurance companies.
    Goldsmith’s proposal to piggyback on Medicare avoids the touted possibility of a “small” stand-alone public plan, which would have relatively high administrative costs, networking and contracting difficulties, a lot of adverse risk exposure, and little market power, as Victor Fuchs and others have convincingly pointed out.

  4. karoli Says:

    I have long argued that this is the most obvious solution to the problem, and not simply because it brings in the ones who are uninsurable. Anyone over age 50 who isn’t making six figures knows exactly how expensive private health insurance has become. I am a healthy, fit 51-year old with no chronic illness who sees the doctor once every couple of years when bronchitis strikes and lingers. I would gladly buy into Medicare for the peace of mind it would bring, as would my spouse, who is 56. If healthy people are buying in, positive cash flow could be generated to help with those who aren’t. We have a 20-year old son who was just diagnosed with ulcerative colitis and diabetes. Under current laws, he is now uninsurable. HIs diabetes is genetic — he’s not overweight nor sedentary, and when he gains the weight back from his bout of ulcerative colitis, he’ll likely be able to manage his diabetes with diet and exercise and one small insulin injection per day. If he were permitted to buy into Medicare along with others like him, he’d be able to continue his dream of being a self-employed (and quite good) musician.

  5. Dr. M.Z.Younis Says:

    Such proposal and even the other proposals of Health Insurance Reform (which called health care or universal care) are a step forward.
    However the problem is that all theses proposal and plans are “Tenuous”. and have the chance to fail during the current administration.
    The health care system in US is unique and we have the ability to move to the British system by expanding on the VA health care system or the single payer system by adopting Medicare for ALL.

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