Monday, February 18, 2019

The Choose Medicare Act: How strong is this public option?

The Medicare for America Act, introduced last December by Reps Rosa DeLauro (CT-03) and Jan Schakowsky (IL-09), is a halfway house -- or two-thirds-way house -- to single payer -- and arguably a complete route to all-payer.  This bill (summary here) creates a revamped Medicare that auto-enrolls all children born in 2022; allows employers and employees to buy in; and folds in Medicaid and senior Medicare. It preservers a role for private insurance, via Medicare Advantage and the remaining option for employers to provide private insurance.

The bill would effect a less radical and somewhat more gradual transformation of American healthcare than Bernie Sanders' Medicare for All bill -- but a sweeping, sudden and very expensive transformation nonetheless, undertaking to transform Medicaid, senior Medicare, and long-term care (for which it provides coverage) as well as the individual and employer markets (the latter would be empowered to pay Medicare rates, set at 110% of current Medicare in the new public program). Insurers should be able to ultimately live with it; providers would fight it tooth and nail.

For those more comfortable with more incremental change, the Choose Medicare Act introduced by Senators Jeff Merkley (D-OR) and Chris Murphy (D-CT) last April (summary here) has a somewhat similar architecture but does not a) autoenroll newborns, b) fold in Medicaid, c) include long-term care or d) much change senior Medicare, except to add a yearly cap on out-of-pocket expenses to traditional Medicare.  What it does do:

1) Create a public option dubbed "Medicare Part E" that employers and employees, as well as people dependent on the individual market (not Medicaid) can buy into. [UPDATE/Correction, 3/18]: the bill does not amend the ACA to make those who have an affordable offer of insurance from an employer eligible for marketplace subsidies, e.g., subsidies to buy Medicare Part E. That's a huge hole, and I didn't recognize it.

2) Subsidize premiums for people with incomes up to 600% of the Federal Poverty Level instead of the ACA's 400% FPL.

3) Change the ACA benchmark from 70% actuarial value to 80%, i.e. from silver to gold level

4) Extend Cost Sharing Reduction (CSR) to enrollees with incomes up to 300% FPL and boost the actuarial values at 200-300% FPL (with a slight dip from 94% AV to 92% at 133-150% FPL).

5) Empower Medicare to negotiate the prices of select drugs (selected by its own chosen criteria) for Part D plans and the new Part E.

6) Cover abortion, preempting any federal or state law that restricts access.

7) Establish a yearly out-of-pocket maximum in traditional Medicare similar to that of Medicare Advantage plans.

The public option is very expandable, as employees can choose it over a private plan offered by their employers and receive ACA subsidies if their income qualifies them, and employers can offer the plan to their employees. The percentages paid for a benchmark plan at different income levels prescribed by the ACA are unchanged, except that the maximum (slightly below 10% of income) is extended to 600% FPL and the value of the benchmark itself is boosted.

The Choose Medicare Act would seem to provide a path to near-universal coverage, although the percentage of income required for a benchmark plan remains high (as in the ACA) in the 133%-400% FPL income ranges (rising from roughly 3% of income to roughly 10%).

On the cost control front, however, the bill has a serious weakness -- a major concession to healthcare providers.

The HHS Secretary is charged with negotiating provider payment rates for Medicare Part E. The ground rules:
The Secretary shall negotiate the a manner that results in payment rates that are not lower, in the aggregate, than rates under title XVIII, and not higher, in the aggregate,than the average rates paid by other health insurance issuers offering health insurance coverage through an Exchange (p. 7 - Sect. 2201(e)(2)) .
The top rate is bounded by the average of rates paid by private insurers in the exchanges. WTF, Senators?

The battle to rein in U.S. healthcare costs -- which are more than double the OECD average per capita -- arguably hinges mainly on increasing the percentage of the overall population enrolled in plans in which government controls provider payment rates. Currently that percentage is just about half. When we reach a certain critical mass, rates paid by remaining commercial insurers should converge with rates paid in public programs. Medicare for America effects this shift by requiring providers accept Medicare rates from private employer plans. Choose Medicare falls down on this front, establishing commercial rates in a program that will enroll tens of millions. At present, commercial insurers pay an estimated 188% Medicare to hospitals and 128% to physicians.

In fairness, Choose Medicare provides some leverage to HHS in negotiating rates. The chief leverage: providers who accept existing Medicare on the date of enactment  have to accept the new plan, Medicare Part E.  Second, HHS is charged with adopting alternative payment models -- e.g., programs in which providers assume some risk for meeting performance benchmarks -- established  by the 2015 law reforming Medicare payment practices, the Medicare Access and CHIP Reauthorization Act (MACRA). Third, the bill empowers HHS to negotiate drug prices, taking the efficacy of a given drug and the availability of comparable alternatives into account and imposing the prices paid by the Veterans Administration if negotiations fail.

Choose Medicare also leaves Medicaid untouched, preserving its lower payment rates, whereas Medicare for America folds Medicaid into the revamped Medicare, thus overall converging rates on all fronts toward 110% current Medicare (with bump-ups for primary care physicians and rural hospitals).

The negotiation parameters in Choose Medicare seem designed to settle rates for Medicare Part E somewhere between current Medicare and commercial rates. That's a major concession to providers. The convergence of rates mandated by Medicare for America is a heavy lift. But in my opinion that's a battle we have to have. Fragmented payment rates are the root of U.S. healthcare dysfunction.


  1. Thanks for posting. These plans are damned hard to assemble so I respect the effort by the drafters.

    Here are a few areas where I would probe further:

    1. Covering long term care would cost about $275 billion a year per the Urban Institute. That is a 3% payroll tax all by itself. I am not opposed but remember, this is a Congress that fights over CSR's and border walls that cost a fraction of this.

    2. If a drug company refuses to negotiate, you mention an exceptions clause if the drug is vital to health. Heck, most of the new expensive drugs are vital, some are needed for survival. I am a little puzzled as to what happens here.

    3. Maintenance of effort for Medicaid and CHIP taxes might be unconstitutional. This needs work.

    4. I like the low deductibles. Would there be 20% coinsurance also? I hope not. Coinsurance is just financial cruelty, it does not lead to better patient decisions.

    5. We have seen with the ACA is some people will not buy coverage even if it is subsidized. Now the coverage in this plan is decent and worth buying, so maybe that will alleviate the free rider problem.

    Comments welcome!

  2. The DeLauro-Schakowsky bill could get pretty expensive, with the following features:

    1. Extending subsidies to 600% of poverty
    2. Expanding CSR's
    3. Putting cost sharing maximums into Medicare

    These are not super-expensive items, maybe $15-$25 billion each, but they add up.

    The big costs come with:

    a. long term care, at least $250 billion a year
    b. allowing employers to cover their employees for 8% of payroll

    Picture a company with 20 employees making an average of $50,000 each.
    Total payroll is $1 million.

    With this bill, they can get a platinum level plan for entire families (I assume) for $80,000 a year.

    Based on my extensive experience in group health, this is a great bargain!

    So, the small group market will move over to the new plan.

    Now I am going to start guessing, but somebody has to.

    Assume 50 million non-seniors in the new plan. Assume average income of $30,000 a year. Assume that their share of premium is 5% or $1500 a year. Assume that the actual plan cost is $6,000 a year per person.
    That means a subsidy of $4500 a year, times 50 million persons equals $225 billion a year in subsidies. I think I am being conservative here.

    So, the overall bill would cost close to $600 billion a year. The means a Medicare payroll tax increase of at least 7% to pay for it.

    By international standards, this is no big deal. France and Germany pay over 15% of payroll for health care and they are prosperous places.

    But could America pass this?