Monday, September 19, 2016

Scoping out a Medicare buy-in

Hillary Clinton's raft of healthcare policy proposals includes enabling 55-64 year-olds to "opt in" to Medicare. No detail is provided.

I have a piece in progress that looks at a variant of a Medicare buy-in. This is a scratch-pad post, to help me clarify for myself who might or might not benefit.

When Clinton first verbally expressed a willingness to consider a Medicare buy-in, Avalere Health scoped out the potential market, but they did it for a wider age group, 50-64, as Clinton first mentioned 50 or 55 as a threshold.  Avalere's Caroline Pearson and Chris Sloan were kind enough to provide me with a breakout of their calculations for 55-64 year-olds. As it's based on the 2014 American Community Survey, I have updated where possible, as explained in notes below.

Presumably the buy-in would not be offered to roughly 24 million people in the 55-64 age group who have access to employer-sponsored insurance -- including retirees with ESI, whom Kaiser estimated to number 5.3 million in 2012.  I doubt there's a single member of Congress, Senator or potential president other than Bernie Sanders with a more than theoretical interest in shaking up employer-sponsored insurance

The buy-in would be open to the uninsured in the 55-64 age band, who currently number about 3.4 million,* and to those who currently get their insurance in the individual market, of whom there are probably a bit over 5 million. That includes a shade under 3 million in the ACA marketplace, and probably another two million-plus buying off-exchange. About 2.4 million marketplace enrollees in the age group are subsidized, if. the marketplace income breakouts reported by CMS apply proportionately to this age group.**

Among the uninsured, some are undocumented immigrants; others, legally present noncitizens time-barred from access to public insurance; still others are Medicaid-eligible but unenrolled; and some are in the "coverage gap" -- that is, having an income under 100% FPL in a state that refused the Medicaid expansion. .

In the ACA marketplace as a whole, about 60% of enrollees have incomes under 200% FPL,*** though the percentage may be somewhat lower in the 55-64 cohort (see second note below), To those below this income level, he marketplace offers cheaper coverage with lower cost-sharing than traditional Medicare or Medicare Advantage offers to the over-65 set (though usually with much narrower networks than those of MA plans, let alone traditional Medicare). That is, a silver plan will cost no more than $125 per month (or as low as $20 per month in non-expansion states) and will have an actuarial value of either 94% or 87%. The Medicare premium for current enrollees over 65 is $125 for those with incomes up to $85,000, and AV is probably a bit north of 80%.

On the other hand, if the Medicare/Medicaid "dual eligible" program were carried into the buy-in, virtually everyone in this income group would be eligible for one variant or another.  Since a Medicare buy-in is only imaginable with a Democratic Congress as well as president, we might as well imagine them using dual eligible status to eradicate the Medicaid coverage gap for this group (or would that also have to be optional for states?). [Update/afterthought, 9/17: And speaking of dual eligibles, it's worth noting that 4 million 55-64 year-olds are currently on disability Medicare (Avalere), and that about dual eligibles are under age 65, as I noted in this post.]

Depending no subsidy structure, the main beneficiaries of a buy-in could be those now paying full freight in the individual market, or those among the uninsured who would have to pay full price if they enrolled (and who would not be barred from a buy-in for reasons other than income). That group could use some relief: the average unsubsidized premium for a 60-year old in the ACA marketplace is $635 per month. But unsubsidized Medicare would cost more: In 2008, CBO estimated buy-in cost for 62-64 year-olds at $633 per month. If that were raised in proportion with Medicare premiums hikes since 2008****, it would come to about $780 per month now, albeit for the oldest third of the cohort. For the whole 55-64 group, the premium might average about $720. That would be pretty close to the cost of a gold plan in the marketplace, which would have a more or less comparable AV.

While that's a pretty speculative calculation, I think it's fair to say that a Medicare opt-in would have to be subsidized to do anyone much good. Its chief utility might be to provide a kind of political cover to raise the threshold for subsidy eligibility for the near-elderly, which may not be a bad idea in itself. If a Democratic government (presidency and Congress) wanted to enrich health insurance subsidies, it might get a relative discount adding the Medicare buy-in to the mix, since the care obtained would be reimbursed to providers at Medicare rates, rather than the higher rates most insurers pay in the marketplace and individual market. Beneficiaries would also be getting better provider networks, either the effectively unlimited one available through traditional Medicare or the more limited ones offered by Medicare Advantage plans, which are better on average than those in marketplace plans.

Some suggest that a Medicare buy-in might improve the ACA marketplace risk pool. That would only be true, it seems to me, if the lower-income marketplace enrollees in this cohort were enticed (or forced) out, perhaps by a dual-eligible program (Medicare/Medicaid).  If the buy-in option existed alongside the marketplace, and were subsidized to high income levels, it would probably skim off the wealthier/healthier older enrollees from the marketplace and off-marketplace individual market, further weakening the risk pool.

In short, a Medicare buy-in seems like a heavy political lift and difficult policy-engineering job for a pretty limited beneficiary pool. Again, perhaps it would be cheaper to improve subsidies for this age group by putting them in Medicare than by enriching their subsidies in the marketplace, because provider payment rates are lower on average in Medicare. But that raises the larger question why we've created a market in which insurers have to free-form-negotiate provider rates.

* Avalere has 4.0 million uninsured in this age group as of 2014. According to the latest  CPS ASEC, the uninsured total in 2015 was 87% of the 2014 total. Assuming a smaller reduction in 2016 I took 85% of 4.0 million to arrive at 3.4 million.

** Median income in this age group is somewhat higher for the 55-64 age group  ($62,802)than for all age groups combined ($56,516). But that's for the whole population, not marketplace customers.

*** HHS reports that 66% of enrollees who provided income information have incomes under 201% FPL.  That's 61% of all enrollees, including those for whom income is unknown -- some of whom may be under 200% FPL. The percentage is lower for the quarter of marketplace enrollees who used state-based marketplaces.

**** Thanks to Josh Schultz at hCentive for pointing me to the Medicare Trustees' report for 2016, pp 205 and following.

[Originally published 9/16//16]


  1. Thanks for another fine article. I just ran a Blue Cross quote for a couple in Wisconsin aged 61 and 62. The cost for a gold plan was $800 per spouse – identical to the Medicare number you quoted. Of course the Blue Cross rate might go up 30% in November. Medicare can cover losses with tax dollars, so its premiums are far more stable.
    Medicare buy-ins would work best if the ACA subsidies were extended to all incomes. The couple I quoted for make $65,000 a year, so they face a monster premium of $1600 a month with no subsidy. As pointed out by the Urban League, we could say in a minute that no one at any income has to pay more than 8 to 10 percent of their income for health insurance.
    At 8%, my $65,000 couple would pay about $700 a month for good Medicare, not too shabby.

    1. Bob, that couple is just over the line for 2017: 400% FPL is $64,080. Can't they claim some business expense or something to slip under? If income is not 100% certain they should enroll via marketplace so that if they're under, they can claim the subsidy.