Medicare Extra creates an all-payer system -- via a bank shot for employers

Like many "Medicare for All" or "Medicare for Most" plans that preceded it, the Center for American Progress's Medicare Extra plan, released on Feb. 22, preserves employer-sponsored insurance. Employers can opt to continue to offer their own plans, with a minimum actuarial value of 80% (near the current employer average). They can sponsor their employees' entry into Medicare Extra. Or they can leave their employees to enter the system on their own and reimburse the government.

The plan spells out two reasons for maintaining employer-sponsored insurance: keep employer dollars in the system, and minimize disruption (if you and your employer like your plan, you can keep it):

U.S. employers currently provide coverage to 152 million Americans and contribute $485 billion toward premiums each year. Surveys indicate that the majority of employees are satisfied with their employer coverage. Medicare Extra would account for this satisfaction and preserve employer financing so that the federal government does not unnecessarily absorb this enormous cost.

Some early proposals to achieve universal coverage chiefly through Medicare expansion plans either envisioned the phase-out of employer-sponsored insurance or were forecast by analysts to accomplish that end.  Helen Halpin's proposal introducing CHOICE program (2003), the grandmother of "strong public option" plans, was actually titled "Getting to a Single-Payer System Using Market Forces."  The plan would entice employers to give up on health insurance by imposing a payroll tax (6.5% for large employers, 5.5% for small ones) calculated to be lower than the cost of providing insurance (estimated at 7 to 8% of payroll). Rep. Pete Stark's Americare plan, introduced in 2006, would all but wipe out ESI, according to a forecast from the Lewin Group (why exactly, I'm not sure).

Jacob Hacker's Health Care for America plan, in contrast, introduced in 2007, envisions preserving ESI. A Lewin Group analysis of the plan forecast that half of the nonelderly population would remain in employer-sponsored plans.  ESI would realize savings through the elimination of uninsurance and reduced demand to cover spouses and children.  Hacker envisions fruitful competition between ESI and the expanded Medicare program (though his plan imposes a 6% payroll tax on employers who give up on offering coverage, similar to Halpin's).

All three of these proposals, like Medicare Extra, give employers the choice of continuing to offer insurance (with required levels of coverage and employer funding) or financing employees' entrance into the public program by one means or another.

In assessing the likely fate of ESI, one might wonder how it could compete with a public program, given the higher rates generally paid to healthcare providers by commercial insurers (including self-funded employer plans). At present, commercial payments rates average 128% of Medicare rates for physicians and 189% for hospitals, according to MEDPAC and other data cited by the Medicare Extra plan outline (in footnote 25). Medicare Extra proposes (tentatively, subject to full cost analysis) to pay 100% of Medicare rates to physicians and 120% Medicare to hospitals (also bringing Medicaid up to those levels).

To level the playing field for employers, Medicare Extra takes a bank shot on their behalf:

Importantly, the benefits of Medicare Extra rates would extend to employer-sponsored insurance and significantly lower premiums. For employer-sponsored insurance, providers that are out of network would be prohibited from charging more than Medicare Extra rates. Research shows that this type of rule—which currently applies to Medicare Advantage plans—indirectly lowers rates charged by providers that are in network.28

The out-of-network (OON) rule gives insurers vital leverage.  Why should they pay providers more than providers can collect if they stay outside the network? The OON rule effectively tethers commercial rates to public rates, creating a de facto "all-payer" system, or something close to it. Medicare Advantage plans pay rates that are very close to those of traditional Medicare.

In a Sept. 2016 interview with me, John Kingsdale, a health insurance executive who was founding director of the Massachusetts Connector, the marketplace set up by Mitt Romney's ACA prototype, proposed using this kind of OON rule to shore up the ACA marketplace. He explained it like this:

the rule would create a BATNA – a Best Alternative to a Negotiated Agreement – for everybody. That is, the Medicare rate. That’s the best a provider can do by refusing to sign up with an insurer, and the best the health plan can do by refusing to sign providers up – which means that the agreements are going to be negotiated based on something like those rates.

The rule would set up a de facto "all payer" market, in which commercial insurers pay the same rates as the public plan, or close to it (Medicare Extra also retains the current system's private Medicare plans, which would be paid by the federal government at rates capped at 95% of the Medicare Extra premium).  The rule also has the effect of widening employer plans' provider networks -- and ending balance billing.

The Medicare Extra plan makes it relatively easy for large employers to maintain their current status quo:

Their coverage would need to provide an actuarial value of at least 80 percent and they would need to contribute at least 70 percent* of the premium; the vast majority of employers already exceed these minimums.

That's true. According to the Kaiser Family Foundation's 2017 Employer Benefits Survey, the average employer-sponsored plan covers 81% of the cost of an individual's coverage, and 70% of family coverage. Estimates of the average actuarial value of employer coverage range from about 80-85%.

In short, Medicare Extra seems designed to weed out subpar employer coverage, offered largely to low-wage workers and by smaller firms, and preserve existing high-value employer coverage while making it more cost effective (primarily by lowering provider payment rates).

In 2009, healthcare providers worked to kill the inclusion of a public option in the ACA because they did not want reduced provider payment rates to become a norm in the individual market -- which would insure 25-30 million Americans at most.  Medicare Extra's OON billing cap would likely reduce payments rates to public levels for the 150-plus million people now insured in the employer market -- stopping the ESI gravy train forever. That hit would be partly offset by raising Medicaid and Medicare rates.  But if something like Medicare Extra ever gets written into legislation, expect either a quiet killing or a battle royal over the OON cap.

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*  By comparison, Pete Stark's Americare plan required employers to contribute 80% of the employee premium. Perhaps that's one reason it was forecast to phase out ESI.