An Evaluation of Medicare for America
Medicare for America is a politically feasible alternative to Medicare for All primarily because it allows people to opt out of public insurance and keep their employer-based insurance. Medicare for America would expand coverage and decrease financial exposure stemming from high out-of-pocket costs. I worry a lot about how such a large expansion of the public sector will impact fiscal policy and on how annual debates over the debt limit and the government budget could impact our health benefits.
Several 2020 Democratic candidates initially endorsed Senator Sander’s Medicare for All proposal but have backed away from a key provision in the bill that eliminates all private health insurance. One candidate, Beto O’Rourke, now explicitly endorsed Medicare for America over Medicare for All. Centrist candidates generally endorse more modest proposals, which add public plan alternatives to state exchange markets.
The purpose of this post is to summarize and evaluate the Medicare for America proposal and to compare Medicare for America both to Medicare for All and other more centrist options.
This analysis of Medicare for America relies on two sources of information. The first is a summary of the bill on the web site of one of the sponsors.
Summary from Sponsor:
The second is the side by side of several bills created by the Kaiser Family foundation.
The main features for the Medicare for America plan are as follows.
Coverage Rules: Medicare for America creates a new optional public health plan with comprehensive benefits for all U.S. residents. The proposal eliminates marketplace individual health insurance, current Medicare, Medicaid and CHIP. Residents with other forms of insurance, basically employer-based private coverage, can opt out of the new program. Individuals with employers offering employment based insurance can choose insurance offered by their employer or Medicare for America
Incentives for Employers:
The proposal allows large employers to continue to offer coverage for employees or pay 8 percent of payroll for employee coverage in Medicare for America. Small employers can offer employer based insurance but are not subject to a payroll tax if they choose to not offer insurance to their employees. Once the law is fully phased in employers can purchase Medicare for America policies for their employees instead of private insurance.
Financial Impact on Households: With any insurance there are two costs to the household — premiums and out-of-pocket costs.
Medicare for America has no premiums for people with income under 200% FPL.
Premiums set by the Secretary of HHS but not to exceed 8 percent of household income. Premiums linked to income for people with income between 200% and 600% FPL.
Medicare for America has no deductible at any income level and no cost sharing for people with income less than 200% FPL. The plan allows for a coinsurance rate of 20% up to $3,500/$5,000 single/family out-of-pocket limit,
Provider Rules and Incentives:
Payment rates are in general linked to current Medicare and Medicaid rates but are allowed to be higher for some services. The Medicare for America compensation rate will be substantially lower than the private insurance compensation rate and the lower compensation rate could adversely impact some providers and/or result in some providers refusing to treat Medicare for America patients? Medicare for America does not allow for private contracting with providers. The proposal provides student loan forgiveness for participating providers and this feature may persuade some providers to take patients with Medicare insurance for America coverage.
Democratic candidates are currently mulling three main types of health care reform proposals — Medicare for All, Medicare for America and Adding a Public Option to state exchanges.
The Medicare for All proposal, the preferred option of the progressive wing of the party eliminates all private health insurance. It is entirely tax financed and eliminates all premiums. The elimination of premiums means no households will be denied coverage due to affordability concerns. Medicare for All would truly create universal coverage.
Medicare for America is the option that appears closest to Medicare for All, however, the program retains some premiums and could fall short of achieving universal coverage due to affordability impacts.
Medicare for America eliminates state exchanges but retains employer-based coverage. Medicare for America premiums are highly subsidized for lower income households but affordability concerns could prevent some people from obtaining coverage.
Medicare for America allows people to opt out of the public plan accept employer-based insurance. Medicare for America allows for the continuation of Medicare Advantage plans, which involve managed care administered by private firms. Medicare for All eliminates this option
Several candidates currently supporting Medicare for All have stumbled over the question whether private health insurance should exist. Medicare for America is a viable alternative with both a private and public option.
Currently, the overwhelming majority of working age people and their families get their health insurance through their employer. The ACA state exchanges cover a small share less than 5 percent of this population. Simply adding a public option to state exchanges without other changes to premium tax credits would have only a small impact on the size of state exchange health insurance markets. Some public options could have a larger impact if they were combined with changes in rules governing eligibility for premium tax credits in state exchanges. Most public option proposals do not include major changes to these rules.
The Medicare for America and Medicare for All Proposals would substantially reduce cost sharing. Most public option proposals would have little impact on cost sharing.
Medicare for America and Medicare for All would cut compensation for health care providers and hospitals. Reductions in compensation would lead some doctors and hospitals to refuse to treat Medicare for America patients and could cause some people to choose a private network. No private networks are allowed under Medicare for All.
There are several issues that need to be addressed in more detail.
Issue One: Under Medicare for America what factors will determine the shares of private and public health insurance?
The primary impact on whether a firm would continue to offer health insurance after enactment of Medicare for America is whether firms are small or large. Firms with more than 100 employees or payroll of $2.0 million are required to pay an 8 percent payroll tax if they do not offer health insurance to their employees. Small firm are not subject to this tax. Small firms with fewer than 100 workers or payrolls less than $2 million are not subject to this payroll tax. As a result, small firms are more likely to have their firms rely on Medicare for America insurance.
The other factor interacting with firm size that will determine whether a firms offers employer-based insurance to their employees is the distribution of income for workers in the firm. Firms with a large share of low-income workers will gravitate towards refusing to offer employer-based coverage or buying into Medicare for America. In either case, lower and mid income workers may choose Medicare for America to minimize their cost sharing obligations. Higher income people could choose the employer based option to maximize wealth in their health savings account and obtain access to hospitals and doctors who do not treat Medicare for America patients.
Issue Two: What is the cost to households of Medicare for America health insurance compared to private health insurance?
There are two sources of direct costs to households — premiums and cost sharing obligations. There are no premiums and no cost sharing for people with income under 200 percent of the federal poverty line. Premiums are to be set by the secretary of HHS but are not to exceed 8 percent of household income. Premiums are linked to income for people with income between 200 percent and 600 percent of the federal poverty line. The coinsurance rate for people with household income greater than 200 percent of the federal poverty line is 20 percent subject to a $3,500/$5,000 single/family out-of-pocket limit.
Low-income households will almost certainly have lower health care costs (premiums + out-of-pocket costs) from Medicare for America than for a private employer based health plan. Both premiums and cost sharing are set to zero for households less with income less than 200 percent of the federal poverty line. A relatively small share of households with income less than 200 percent of the federal poverty line currently have employer-based coverage, hence; this benefit will not result in a major shift toward public insurance.
One factor favoring Medicare for America over many employer-based health insurance plans is the substantially lower cost sharing. Around 40 percent of private health plans are high-deductible health plans. The minimum allowable out-of-pocket limit for a single/family high/deductible health plan is $7,900/$15,800 in 2019 substantially higher than the $3,500/$5,000 for the proposed Medicare for America. Private high-deductible health plans have a minimum deductible $1,350/$2,700 single/family and a maximum allowable deductible up to the allowable maximum out-of-pocket limit. Medicare for America plans are slated to have no deductibles.
Private high deductible health plan allow people to contribute tax deductible funds to a health savings account but the potential savings for many households in a lower tax bracket is low and many households either cannot afford to make these contributions or can only make these contributions by decreasing 401(k) contributions.
The lower level of cost sharing associated with Medicare for America proposal is a very important benefit for many households. First, lower cost sharing reduces financial exposure, which could lead to personal bankruptcy. Second, it reduces and may largely eliminate the tendency for many Americans to skip needed medical tests or forego prescription medicines for chronic health conditions. Third, the lower cost sharing levels reduce the amount a person with a Medicare for America plan must save for out-of-pocket expenses and allows the person to contribute to a 401(k) instead of a health savings account.
Many higher income households might be better off with an employer based health care if they have a plan with relatively low out-of-pocket limit and they save substantial funds in a health savings account.
Cost sharing will be less important to some high-income high-wealth households. Some health care providers including elite hospitals and doctors may prefer individuals with private health insurance over individuals with Medicare for America insurance. One factor likely to impact the relative demand for public versus private insurance after the adoption of Medicare of America is the availability of doctors and providers willing to treat Medicare for America patients.
Issue Three: What are some of the potential administrative problems associated with Medicare for America
The linkage of Medicare for America premiums to income appears similar to rules governing premiums in state exchange markets, which impose a substantial burden on taxpayers and the IRS. Premiums are based on actual adjusted gross income, which is not known until the household files her tax return. The initial premium is based on the taxpayer’s estimate of AGI. The taxpayer is required to reimburse the IRS when income is larger and premiums higher than expected.
The IRS rules governing premium subsidies could result in some taxpayers attempting to defer receipt of income or even delay reentry into the workforce. The Treasury and the IRS are likely to have substantial concerns about this feature of the program, especially since Medicare for America will impact many more taxpayers than current state exchanges.
Issue Four: What is the likely impact of Medicare for America on provider compensation? Will providers accept Medicare for America insurance?
Currently compensation for serving Medicare patients is around 40 percent of the compensation of serving patients with private insurance. Medicaid pays even less around 60 percent of the Medicare rate. The adoption of Medicare for America would reduce doctor and hospital compensation but this impact would be somewhat offset by the elimination of Medicaid.
There is substantial uncertainty about the impact of Medicare for America on provider compensation and access to providers. The lower compensation rate could cause some providers to take on fewer Medicare for America patients. Some providers might charge a concierge fee if such fees are allowed by the program. The prohibition against private contracting in the current bill appears to prevents concierge doctors from seeing Medicare for America patients. (Some concierge doctors currently find Medicare patients extremely attractive because the fee adds to their income and Medicare entails less paperwork than private insurance.)
The provision for student loan forgiveness for providers serving Medicare for America patients will attract some providers
Issue Five: What are the potential impacts of Medicare for America on taxpayers and fiscal policy?
Medicare for America would make your annual health care benefit a major determinant of fiscal policy. As a result, your health care benefit would be subject to the whims of Congress and the President.
Currently, the fiscal process is broken in Washington. Budget deficits rise each year even though the economy is doing quite well and interest rates are low. Despite a strong economy there are frequent fights over the debt limit and frequent and often long government closures.
The Medicare for America proposal gives the responsibility of a large amount of currently private health insurance to the government. Part of the payment for the new public benefit will be obtained by increasing taxes. However, each new government changes tax policy. Four or eight years after a Democratic majority leads to Medicare for America and higher taxes there will be a new Republican majority that cuts taxes.
The new Republican majority would attempt to repeal the Medicare for America benefit. A decision to cut taxes and keep the benefit would lead to even larger deficits and even more intense fights over the debt limit and the government budget.
The annual debt limit or government closure crisis could, depending on how the bill is structured, determine whether your health benefits are paid as scheduled and the compensation rate given to health care providers and hospitals.
You think Washington is broken now. Just wait and see the fights over government closures once public insurance is expanded, taxes are cut, interest rates rise and the economy struggles.
Medicare for America provides generous premium and cost sharing subsidies and allows people to opt out and take private insurance. The program would substantially expand coverage and reduce cost sharing. The opt out feature of Medicare for America is politically attractive compared to Medicare for All.
Medicare for America abolishes state exchange marketplaces, a tacit admission that the ACA has failed and needs to be abandoned. I do not believe this calculation is correct and I continue to favor proposals that expand the role of state exchanges.
My main concern about the Medicare for America proposal is its long term impact on the federal budget and government debt and the future potential impact of fiscal policy on health insurance benefits. Currently, private insurance is not disrupted by the federal budget process. The Medicare for America moves a large share of currently private health insurance onto the federal budget. Medicare for America health benefits would impact the federal budget and the federal budget debates would then impact and even disrupt the provision of health care benefits. This concern leads me to favor proposals that will expand and improve private health insurance including state exchange market places.