Introduction
The notion that competition between private insurers will lower costs and bring universal coverage is, in truth, a triumph of hope over experience.
By contrast – in the words of Diane Archer - Medicare is specifically designed to absorb risk, serving individuals with costly medical needs as well as the relatively healthy.
- Has anyone ever complained about being canceled by Medicare?
- Has anyone ever complained that Medicare refused them coverage?
- Has anyone ever whined that Medicare is socialism? Well, yes. In 1961, Ronald Reagan said that Medicare would bring on a socialist dictatorship.
Yet weirdly, we open it only to seniors and the disabled. It's as if we said that the minimum age to drive on interstate highways is 65 years old. It's as if we said that only seniors could go to public school.
Our proposal would allows Americans to buy into Medicare with a subsidy. If you want Medicare, and you pay for it, you've got it. Period. End of story.
Unfortunately, the Affordable Care Act passed without a Medicare buy-in, or any public option. That kept private insurance companies exclusively in charge of health coverage for people under 65. We can all see how well that's turned out. Private insurers do not want older customers, they never have, and the policies they now offer reflect this. A 62-year old in Omaha has to pay $1,200 a momth for a $6,850 deductible – a policy that would be ludicrous if it were not the only thing he can buy.
Why use Medicare, versus a brand new public option?
A brand new public option would need many months for rate-setting, network creation, provider oversight standards, bill payment procedures, et al.
Medicare has all these capabilities already.
Medicare is also federal in scope -- a vast advantage over state-based programs, which inevitably have enormous variance in funding and quality. When programs vary by state, the residents of poor and stingy states suffer needlessly.
What then is to be done?
Here is an example of what they might find:
- Ages 60-65 . . . $800 a month
- Ages 50-59 . . . $700 a month
- Ages 40-49 . . . $600 a month
- Ages 30-39 . . . $500 a month
We believe that premiums should be set below expected costs, requiring other government revenue to support the program.
Our proposal is that our new buyers pay one half the cost. (This is hardly unprecedented. Seniors pay less than 25% of the true cost of their Medicare. Corporate employees normally pay from 0 to 20 per cent of the cost of their coverage.)
Therefore, a 60 year old would pay $400 a month, a 50 year old would pay $350 a month, etc.
We would add a provision that topped off the premium at 8% of income.
For example, a 60 year old whose annual income was $36,000 (i.e. $3000 a month), would pay no more than 8% of $3000 = $240 a month.
At $60,000 of income ($5,000 a month), the 8% cap would actually equal $400 a month, half the cost of the program.
Above $60,000 of income, the premium cost would still be $400 a month.
If a husband and wife both wanted Medicare coverage, the premium would be doubled but the percentage of income would be capped at 12 per cent.
This average 60 year old would be way ahead with Medicare, compared to the disaster of the ACA.
Instead of paying $1,200 a month for a $6,850 deductible, the new Medicare buyer would pay $400 a month for a lower deductible, plus a network with most doctors and all hospitals available.
Who will be eligible?
But If their employer covers only one spouse, then the uncovered spouse could buy into Medicare.
When can people enroll?
We are not worried that some persons will enroll right before they need care. This happens in over-65 Medicare all the time. Unlike private insurance, Medicare can lose money for a time without demanding premium increases.
Will new enrollees get the same Medicare package as the elderly?
This program features a single deductible for hospital care, office visits, and diagnostic tests, and also includes a maximum out-of-pocket limit.
We propose a deductible of at least $1,500. Medicare would not be paying relatively tiny claims, and would not need to regulate all the fees charged by primary physicians. (The deductible would be reduced or waived for emergency care.)
The persons who join Medicare would gain invaluable protection against balance billing. Also, if a Medicare claim is denied, the patient is not liable.
And on a daily basis, Medicare fees are much lower, for example:
1. Complex Blood Panels
Hospital Charge: $151
Medicare Fee : $15
Hospital Charge: $151
Medicare Fee : $15
2. EKG
Hospital Charge: $367
Medicare Fee : $26
3. Echocardiogram
Hospital Charge: $4,361
Medicare Fee : $291
4. CT of Brain
Hospital Charge: $2,621
Medicare Fee : $269
Hospital Charge: $2,621
Medicare Fee : $269
5. CT of chest or abdomen
Hospital Charge: $5,690
Medicare Fee : $458
Hospital Charge: $5,690
Medicare Fee : $458
6. Typical MRI
Hospital Charge: $3,422
Medicare Fee : $596
This is well worth considering.
For example, high-deductible version of Medicare could be offered for 3% of income. (We would use last year’s income, by the way , to prevent the hideous ‘recaptures’ in the ACA.)
The deductible could be capped at 10% to 20% of annual income. A person making $30,000 a year might have a deductible of $6,000 . . . painful, but not necessarily bankrupting.
For a major illness, most people can borrow or tap relatives for $6,000. We could also establish a state-backed lending agency, to provide no-interest loans for the deductible.
Under this option, any taxpayer could purchase cheap protection against the costs of an accident, injury, or unexpected illness. Many would find this preferable to the bloated prices of ACA policies.
For the person in Omaha described above, why should he pay $1,300 a month if all he wants is protection? Remember that if he wants comprehensive coverage for durgs, office visits, et al, we would let him buy into full Medicare.
The only ACA policies to survive will be low-deductible HMO plans from insurers like Kaiser -- these actually deliver services if you pay the high premiums.
In fact, the Part A package could constructively replace the penalty fees of the ACA.
Here’s how: a person who had no health insurance whatever would be assessed 3% of income on their tax return. This would give them catastrophic coverage for the next year. They would not have to buy an overpriced policy on the exchanges, and yet if they were hospitalized most of the bills would be covered. In fact, we could consider this as essentially their contribution to our emergency health care system.
(Of course some persons do not file taxes and still evade the 3% charge. When and if they were hospitalized, they would have to pay all back charges at that time.)
The uninsured are by definition a pretty healthy group. On average about two million uninsured persons are hospitalized each year, with an average cost of $15,000 each -- a total of $30 billion. With the Medicare fee schedule, some short hospital stays will cost less than $10,000 and not be insured – but there will still be some expensive care to cover.
If 30 million uninsured adults earned $20,000 each and were taxed at 3% each, that would raise $18billion in new taxes and largely pay for the program.
Is this a tax, by the way? Unashamedly yes. If we are going to have an emergency care system that treats anyone in need, then everyone should pay for it in some way. Our ‘default Part A’ program does capture many of the free riders.
This is another example where a relatively small expenditure on social insurance can leave millions better off.
We realize that the initial cost estimates will not be perfect. The Medicare buy-in may well attract an unhealthy mix of patients – after all, Medicare will be most attractive to older persons who see a lot of doctors.
If claims exceed premium revenues, then premiums will be raised - but gradually, as happens with Medicare Part B.
For example, the $400 premium initially charged to a 60 years old could go up to $420 in year 2.
To repeat – the essence of Medicare is its ability to absorb bad risk. Medicare can afford to lose money.
In the individual market, we expect a massive corporate sigh of relief. Insurance companies have by and large been trying to escape the individual market for years.
They do love to participate in government programs, it is true, but only if they are not bearing any risk. Blue Cross made far more money processing claims for Medicare, than it ever made covering new risks in the ACA.
Medicare typically pays providers less for services compared to private insurance plans. If the Medicare buy-in program results in individuals switching from private plans to Medicare, providers may see a reduction in their compensation. On the other hand, if the Medicare buy-in program reduces the number of uninsured individuals, for some providers—especially hospitals—the lower reimbursement rates may be offset by a decrease in uncompensated care.
The right to be assisted in the purchase of health insurance was established by the ACA in 2009. We are offering a better way to enforce this right.
Some also say that Medicare will soon be in financial trouble, and therefore we are adding deck chairs to the Titanic.
We do not agree. As the percentage of seniors in the population increases, the tax rates we pay for Medicare should increase also. We may also need to tax more than payrolls, i.e. a national sales tax. Neither of these are beyond the capacity of a wealthy nation.
Also, Medicare in the future does not need to pay for office visits and seven kinds of free screenings. Nor does Medicare need to pay retail prices for speciality drugs.The current menu of Medicare services is not etched in stone, or anywhere else.
Let’s make some initial assumptions:
Assume that these subsidies would have averaged $3000 a person.
By redirecting those subsidies to the buying, we gather in $15 billion or about half the cost of the Medicare expansion.
We would add a tiny increase in the Medicare payroll tax of one half of one percent – a quarter percent to employees, and a quarter per cent to employees.
For a worker making $40,000 a year, this comes to $200 a year in total, or $17 a month split two ways.
This would raise $35 billion by itself – enough to cover the buy-in plus potential overruns.
A Medicare buy in takes us closer to what Mike Konzcal describes as true social insurance.
Note his chart below, and the comments that follow:
What we often refer to as Category A can be viewed as a “neoliberal” approach to social insurance, heavy on private provisioning and means-testing. Think of it as a plan for reworking the entire logic of government to simply act as an enabler to market activities, with perhaps some coordinated charity to individuals most in need.
This contrasts with the Category B grouping, which we associate with the New Deal and the Great Society. This approach creates a universal floor so that individuals don’t experience basic welfare goods as commodities to buy and sell themselves. Readers will note that Social Security and Medicare are more in Category B category rather than Category A. Franklin Delano Roosevelt may not have known about JavaScript and agile programming, but he knew a few things about the public provisioning of social insurance.
Hospital Charge: $3,422
Medicare Fee : $596
Should Medicare also have a cheaper, catastrophic plan option?
For example, high-deductible version of Medicare could be offered for 3% of income. (We would use last year’s income, by the way , to prevent the hideous ‘recaptures’ in the ACA.)
The deductible could be capped at 10% to 20% of annual income. A person making $30,000 a year might have a deductible of $6,000 . . . painful, but not necessarily bankrupting.
For a major illness, most people can borrow or tap relatives for $6,000. We could also establish a state-backed lending agency, to provide no-interest loans for the deductible.
Under this option, any taxpayer could purchase cheap protection against the costs of an accident, injury, or unexpected illness. Many would find this preferable to the bloated prices of ACA policies.
For the person in Omaha described above, why should he pay $1,300 a month if all he wants is protection? Remember that if he wants comprehensive coverage for durgs, office visits, et al, we would let him buy into full Medicare.
The only ACA policies to survive will be low-deductible HMO plans from insurers like Kaiser -- these actually deliver services if you pay the high premiums.
In fact, the Part A package could constructively replace the penalty fees of the ACA.
Here’s how: a person who had no health insurance whatever would be assessed 3% of income on their tax return. This would give them catastrophic coverage for the next year. They would not have to buy an overpriced policy on the exchanges, and yet if they were hospitalized most of the bills would be covered. In fact, we could consider this as essentially their contribution to our emergency health care system.
(Of course some persons do not file taxes and still evade the 3% charge. When and if they were hospitalized, they would have to pay all back charges at that time.)
The uninsured are by definition a pretty healthy group. On average about two million uninsured persons are hospitalized each year, with an average cost of $15,000 each -- a total of $30 billion. With the Medicare fee schedule, some short hospital stays will cost less than $10,000 and not be insured – but there will still be some expensive care to cover.
If 30 million uninsured adults earned $20,000 each and were taxed at 3% each, that would raise $18billion in new taxes and largely pay for the program.
Is this a tax, by the way? Unashamedly yes. If we are going to have an emergency care system that treats anyone in need, then everyone should pay for it in some way. Our ‘default Part A’ program does capture many of the free riders.
This is another example where a relatively small expenditure on social insurance can leave millions better off.
What if the new Medicare program loses money?
If claims exceed premium revenues, then premiums will be raised - but gradually, as happens with Medicare Part B.
For example, the $400 premium initially charged to a 60 years old could go up to $420 in year 2.
To repeat – the essence of Medicare is its ability to absorb bad risk. Medicare can afford to lose money.
Effect on insurance companies
They do love to participate in government programs, it is true, but only if they are not bearing any risk. Blue Cross made far more money processing claims for Medicare, than it ever made covering new risks in the ACA.
Effect on doctors and hospitals
Doesn’t this create a new entitlement?
Some also say that Medicare will soon be in financial trouble, and therefore we are adding deck chairs to the Titanic.
We do not agree. As the percentage of seniors in the population increases, the tax rates we pay for Medicare should increase also. We may also need to tax more than payrolls, i.e. a national sales tax. Neither of these are beyond the capacity of a wealthy nation.
Also, Medicare in the future does not need to pay for office visits and seven kinds of free screenings. Nor does Medicare need to pay retail prices for speciality drugs.The current menu of Medicare services is not etched in stone, or anywhere else.
How do we pay for expanded Medicare?
- 5 million persons sign up for expanded Medicare
- Assume for ease of calculation that they are all ages 60-65.
- They pay either $400 a month or 8% of their income, whichever is less.
- On a rough average, they will pay about $3600 a year each for a Medicare program whose true cost is $9600 a year.
- So their subsidy is $6000 each.
- The total taxpayer cost is 5 million times $6000, or $30 billion a year.
Assume that these subsidies would have averaged $3000 a person.
By redirecting those subsidies to the buying, we gather in $15 billion or about half the cost of the Medicare expansion.
We would add a tiny increase in the Medicare payroll tax of one half of one percent – a quarter percent to employees, and a quarter per cent to employees.
For a worker making $40,000 a year, this comes to $200 a year in total, or $17 a month split two ways.
This would raise $35 billion by itself – enough to cover the buy-in plus potential overruns.
Conclusion
Note his chart below, and the comments that follow:
What we often refer to as Category A can be viewed as a “neoliberal” approach to social insurance, heavy on private provisioning and means-testing. Think of it as a plan for reworking the entire logic of government to simply act as an enabler to market activities, with perhaps some coordinated charity to individuals most in need.
This contrasts with the Category B grouping, which we associate with the New Deal and the Great Society. This approach creates a universal floor so that individuals don’t experience basic welfare goods as commodities to buy and sell themselves. Readers will note that Social Security and Medicare are more in Category B category rather than Category A. Franklin Delano Roosevelt may not have known about JavaScript and agile programming, but he knew a few things about the public provisioning of social insurance.
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