Medicare would be an attractive basis for developing an employer-sponsored insurance alternative either as a direct buy-in or a public option, although any alternative’s success would hinge on how it would be structured, as there could be potential issues in designing such a program. Younger adults in the private insurance market could also realize a reduction in costs as older adults would leave the risk pool for this alternative. The Urban Institute report follows expressed interest by presidential candidate and former Secretary of State Hillary Clinton in this year’s election cycle to explore a Medicare buy-in option for those ages 55 to 64 and a public plan option for Patient Protection and Affordable Care Act’s (ACA) (P.L. 111-148) marketplaces to increase affordability of insurance outside employer-sponsored insurance. Some consumers, particularly those with incomes at or above 400 percent of the federal poverty level, continue to pay high premiums when purchasing coverage in the ACA’s nongroup insurance marketplaces.
Background. Medicare generally pays providers less than private insurers, around 80 percent of private payment rates. The gap has increased substantially for inpatient hospital stays with private rates approximately 75 percent greater than Medicare, although geographic areas are a factor in the difference. Provider payment rates for ACA plans also may be lower. Conversely, Medicare’s administrative load is significantly lower than that of private nongroup insurance.
Although the ACA has improved affordability, the report noted that direct costs to some individuals remain high, as unsubsidized premiums vary by geographic region for comparable types of coverage. According to the authors, premiums can still be high for those ages 55 to 64 as the 3:1 age-rating limits require that the full, unsubsidized premium charged to a 64-year-old cannot be set at more than three times that charged to the youngest adult for identical coverage. Under this approach, premiums are increased for younger adults and decreased for older adults relative to what would have been paid without age-rating limits.
Direct buy-in. A Medicare buy-in for 55- to 64-year-olds would provide Medicare as an insurance option in addition to marketplace coverage. The authors surmised that a Medicare buy-in option would offer enrollees the same covered benefits and cost-sharing structures offered to current Medicare beneficiaries. In order to effectuate a direct buy-in, various policy questions would have to be addressed, such as whether potential enrollees would: (1) have the choice of traditional Medicare, Medicare Advantage, or both; (2) be able to choose between a Medicare option and marketplace plan or would Medicare be their only option outside of employer-sponsored insurance; (3) be charged the same premiums as those age 65 and older; or (4) be eligible for financial assistance similar to current Medicare beneficiaries.
The authors noted that the greatest effect of a direct buy-in to Medicare for those younger than 55 would occur if the 55- to 64-year-olds were given only Medicare as an option, prohibiting them from buying into the private nongroup insurance market. This approach would reduce the marketplace premiums most for those younger than 55 and would also reduce options for those ages 55 to 64. Policy decisions related to premiums, sharing health care risk, and subsidies for purchasing coverage are interrelated. Unlike private insurance premiums, Medicare premiums are set in statute and do not reflect the full aggregate costs of covered services provided to enrollees. Another consequence of the direct buy-in is that enrolling individuals in traditional Medicare would be analogous to removing the enrollees from the marketplace, impacting that aspect of the ACA.
Public option. A public option is a qualified health plan that would be sold through the ACA’s government-created marketplace and would bear health insurance risk like other insurers, complying with the ACA’s insurance reforms and offering coverage in the same actuarial value tiers. An advantage to a public option is that it would avoid some of the complexities associated with a Medicare buy-in because the option would be operated similarly to other marketplace plans. Several design decisions would still need to be addressed, including: (1) provider payment rate setting; (2) incentivizing sufficient provider participation; and (3) appropriate geographic areas for the public option.
A public option would be unable to meet the goal of providing an attractive, efficient option that could catalyze competition in markets with weak insurer or provider competition without a sufficient provider network. For instance, the federal government could require providers to participate at the public option’s rates or be excluded from Medicare. According to the authors, although politically challenging, this could help the public option develop a broad network. The authors suggested that politically the public option could be attractive if it were not offered in all markets. Even in geographic areas where the public option would not be one of the lowest-cost insurers, it could add value if it offered a broad network at a somewhat higher price, giving consumers a different type of option if their market is largely or entirely made up of plans with narrow provider networks.
Companies: Urban Institute
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