By Thomas Bodenheimer
Health Affairs Blog, October 16, 2017
On October 12, 2017, the Trump Administration announced that it would end subsidies that reduce out-of-pocket payments for low-income individuals. This action might drive insurers out of the exchanges and might encourage younger people to drop their individual insurance plans — thereby destabilizing the individual insurance market.
Extending Medicare to the 55-64 age group—who have relatively high health care costs—is a potential fix that could insure the near-elderly and provide stability to the marketplaces. It would remove expensive individuals and families from coverage by private insurance companies, who could in turn reduce premiums for individuals and families below the age of 55.
Under this proposal, Medicare-at-55 would be universal for people in the 55-64 age group and they would leave their current private insurance. It would require an increase in the Medicare payroll tax contribution which has not increased proportionately to increases in Medicare spending; other countries sustain their health insurance programs by gradually increasing their payroll tax contributions. To make this plan fiscally sustainable, the United States would need to do the same.
The Problem With Making Medicare-At-55 Optional
Medicare-at-55 is quite different from proposals suggested by Democrats in 2009 and 2017, which allowed people aged 55-64 to voluntarily buy into Medicare as an alternative to private insurance. The problem with the idea of Medicare buy-in is that relatively few of the near-elderly would choose it. Medicare premiums for this age group—about $8,200 per year for an individual—would be significantly higher than what they currently pay with employer-sponsored insurance and with individual insurance subsidized under the Affordable Care Act (ACA).
In addition, under an optional buy-in there would be confusion among potential enrollees on whether to use the buy-in and person-by-person enrollment would be administratively complex. Moreover, the buy-in would raise vexing legislative questions around premium levels, Medigap and Medicare Advantage policies, and whether people could buy-in to Parts A, B, and D separately.
Automatic Enrollment, Just Ten Years Earlier
The better approach would be to implement a Medicare-at-55 concept in which everyone would be automatically enrolled in Medicare — just like the current system does for those 65 and above. Upon reaching the age of 55, eligible individuals (almost everyone in the 55-64 age group) would simply receive their red-white-and-blue Medicare card. Private insurers and employers would no longer be responsible for this age group, which would allow private insurers to reduce premiums on younger families because they would have a younger, and typically healthier, pool of people to cover. In 2015, per capita health care costs for people between 55 and 64 years of age were $9,707 compared with $6,637 for the 45-54 age group, $4,442 for the 26-44 cohort, and $2,915 for those between 19 and 25.
Once on Medicare at the age of 55, people could choose to get a Medicare supplement through their previous insurer or join a Medicare Advantage plan. While the 55-64 age group has higher health care costs than younger people, they have lower costs than current Medicare beneficiaries, which in 2015 incurred per capita spending of $11,904.
Keep in mind that this is not small group to be adding to Medicare’s risk pool. In 2015, there were 41.1 million people in the 55-64 age group. 24 million have access to employer-sponsored insurance, 3 million have subsidized individual insurance under the ACA, 2 million purchase unsubsidized individual insurance, and 3.4 million are uninsured. This leaves an estimated 8 to 9 million already on Medicare and/or Medicaid.
How Would We Pay For Medicare-At-55?
First, it is noteworthy that from 2010 to 2016, per capita Medicare spending growth was 1.3% compared with 3.5% for private insurance. Second, it would be impossible for most people in the 55-64 age group to pay for their Medicare plan and—given the high per capita costs of this age group—it would be very expensive for the federal government to subsidize their plan. The costs of Medicare-at-55 would have to be borne by the younger population, who would benefit greatly as they reached 55.
The best revenue source for Medicare-at-55 is the current Medicare financing model: payroll tax for Medicare Part A, individual premiums and general federal revenues for Medicare Part B, and Part D through general federal revenues and out-of-pocket costs. The same model could be extended to the 55-64 age group, with an increase in the payroll tax, for example, from 2.9% (half from employers and half from employees) to 3.9% and an increase in the higher-income payroll tax from 2.35% to 3.35%. The precise increases would have to be calculated by federal actuaries and these increases could also be used to extend Medicare’s life from the current date of 2029.
To add to these Medicare revenues, which are distributed throughout the entire population, the new 55-64 beneficiaries would still pay their Part B premiums ($134 per month for incomes of $85,000 or less, more for higher incomes) and Part D (prescription drugs) premiums. Their out-of-pocket costs would depend on whether they have a Medicare supplement or Medicare Advantage plan. The 55-64 population would be subject to the same Medicare rules as the over 65 Medicare population.
To pay for the 55-64 age group to be folded into Medicare, not only the payroll tax, but the portion of Medicare financing provided by general federal revenues, needs to increase. Employers that insure their employees would be required to contribute through Medicare-earmarked payments. Otherwise these employers would receive a windfall since they would no longer be responsible for the health care costs of their 55-64 year-old employees.
Medicare-at-55 is a reasonable proposal to stabilize the ACA while providing reliable health insurance for the 55-64 age group. As the most expensive group insured through the ACA marketplaces moves to Medicare, insurers could reduce premiums for the remaining younger and healthier age groups. The transfer of the 55-64 cohort from employer-sponsored insurance to Medicare would allow insurers to also moderate their premiums in the employer market.
Many questions have yet to be answered in developing the concept of Medicare-at-55, but the idea deserves to be added to the mix of proposals designed to extend our nation’s insurance coverage and repair the ACA marketplaces.
Copyright ©2017 Health Affairs by Project HOPE – The People-to-People Health Foundation, Inc.
By Don McCanne, M.D.
Most individuals who are serious about health care reform recognize that the improvements brought to us through the Affordable Care Act have been insufficient in that costs have not been adequately contained while far too many people remain uninsured or underinsured with detrimental consequences to their health and financial well being. Further reform is mandatory.
Yet sincere reform advocates remain divided with some supporting incremental measures that would gradually repair some of the flaws in our system while others support transformation, in one step, to a universal, comprehensive program that addresses essentially all of the major defects in health care financing today. That step would be the enactment of a single payer system – an improved Medicare for all.
The divide between these two groups is not always that clear. Of those who support incremental steps some would merely tinker with the current system while supporting relatively ineffectual concepts such as value-based financing or consumer empowerment. Other incremental supporters recognize that changes should represent significant steps forward that would eventually result in a truly universal system.
Thomas Bodenheimer describes a true step forward – that of lowering Medicare eligibility to age 55. He contrasts that with the recommendation of others to allow individuals to purchase Medicare coverage. He explains some of the flaws of the Medicare buy-in, and there are others such as disruption of risk pools. Other than the fact that we do not arrive at single payer as fast, are there any other problems with this first step in moving more people into Medicare by reducing the eligibility age? Well, yes.
The traditional Medicare program is inadequate in its coverage. The cost sharing, especially coinsurance, places too great of a financial burden on retirees with modest resources, especially since there is no cap on the out-of-pocket costs. Most Medicare beneficiaries have additional coverage through Medigap, Medicare Advantage, employment retiree programs or Medicaid. Before Medicare is expanded to include those over 55, the program should be improved so that it prevents financial hardship for all beneficiaries. Also the benefits need to be expanded so that the coverage is more comprehensive. Expanding the population covered without improving the program would make it even more difficult later on to address the problems of excessive cost sharing and inadequate benefits. These defects would tend to be locked in.
Also leaving Medigap, Medicare Advantage and retiree plans as supplemental options would perpetuate the fragmentation and administrative excesses of our system, not to mention the perpetuation of inequities, especially for those who cannot afford or are not eligible for such coverage.The supplemental benefits of these plans need to be rolled into the traditional Medicare program.
Of course, that would make the expansion more expensive. The additional taxes required would likely meet with greater resistance, which is a problem anyway. But it seems more logical to face this tax issue with a single expansion to include everyone rather than fighting it over and over again with each incremental expansion.
Medicare at 55 does address the problem of covering this age group, but there is a downside to doing this as an incremental step. With other programs covering the elderly, children, pregnancy, the disabled, the poor, and the invincibles, there would be less pressure for comprehensive reform since many of the incrementalists would decide that we’ve done about all we can. They would, of course, continue to ignore the other important features of a well designed single payer system that would bring us greater administrative efficiency, equity, access, improved resource allocation, and, yes, true universality. Just try to superimpose those features on a system that the incrementalists say that we’ve already fixed.
So is lowering Medicare eligibility to age 55 a wise incremental step? As incremental steps go, it might be wise, but trying to get to an improved Medicare for all though incremental steps is clearly not wise, for the reasons mentioned. We likely would never make it to the altruistic program we envision. As Quentin Young said, we don’t want to cross that chasm in two steps.
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