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The American Hospital Association has commissioned a study by KNG Health Consulting that fires a warning shot against any expansion of public coverage that draws people out of the private market.
The report purports to show that the Medicare-X Choice Act introduced in 2017 by Senators Bennet and Kaine, establishing a strong national public option in the ACA marketplace, would cut healthcare spending by $1.2 trillion over ten years. Hospital spending would account for $774 billion of the total. The study also forecasts that 5.5 million uninsured people would gain coverage.
As U.S. per capita healthcare spending is more than double the OECD average, one might think that cutting costs while increasing coverage would be cause for celebration. Of course the AHA doesn't see it that way, and warns of dire results for hospitals resulting from some 35 million people* shifting from private to a public plan that pays Medicare rates for services. Leaving aside assumptions about hospitals' adaptability, and the study's calculations with respect to hospital revenue, its assumptions about the impact of Medicare-X on enrollment in private insurance strike me as dubious.
Medicare-X would create a national public option within the ACA exchange, offering ACA-compliant coverage at ACA metal levels. At first the plan would only be offered in low-competition counties, but it would be available in all counties by 2023 -- and open to small employers in 2024. The new plan would pay Medicare rates to providers, and providers that accept Medicare would be required to accept it. The bill does not enrich ACA subsidies or expand eligibility for them. Unlike the Medicare for America Act, Medicare-X does not allow a subsidized buy-in for employees if their employers offer affordable ACA-compliant insurance.
The AHA analysis nonetheless assumes that by 2024, Medicare-X would draw some 35 million people out of commercial coverage. That's well over twice the size of both the current individual market (~14.4 million in 2018) and the small group market (~13.6 million** in 2016). Here's the full breakdown of forecast enrollment in Medicare-X, with movement out of commercial insurance by 2024 highlighted:
Medicare-X does not change ACA rules for subsidy eligibility, which means that people with an "affordable" offer of insurance from an employer -- that is, an individual plan offered at slightly below 10% of the employee's income -- are not eligible for subsidies. It's therefore difficult to envision where 22.6 million who would otherwise be in employer-sponsored insurance (ESI) would come from.
The public option might indeed be attractive to small businesses offering small group coverage -- but even if that entire market transferred en masse to Medicare-X in one year, assuming no market shrinkage since 2016 (and including self-funded plans, per note below), another 7-odd million would have to transfer out of large group ESI.*** Again, though, those for whom the ESI premium for solo coverage costs less than 10% of income would not be subsidy-eligible. While unsubsidized premiums in Medicare-X would potentially be low compared to average current ACA marketplace offerings, in many markets they wouldn't necessarily be the lowest at each (or any given) metal level. Medicaid MCOs have a strong presence in the ACA marketplace, and often they presumably pay provider rates closer to Medicaid than Medicare.
It's possible that with a bolstered ACA marketplace, some large employers, likely those with a lot of low wage workers, would drop coverage. But as Kaiser's Cynthia Cox pointed out to me, the report explicitly states that it does not model employer behavior, i.e. the possibility that a changed marketplace would induce some to drop coverage. Moreover, since Medicare-X does not change subsidized premium levels for benchmark silver plans, it is not likely to radically affect costs -- premiums or OOP**** -- for subsidized enrollees, and so should not induce many employers to conclude that their employees would be better off in the marketplace than in the plans they had been offering to date.
That lack of change in ACA subsidy structure brings us to the report's projections for the non-group (individual) market. The report projects that 12.6 million individual market enrollees will move to the public plan. That's almost as many people as the total currently enrolled in the individual market. It's not clear why the market is projected to reach 21 million in 2024 under current law -- what is to make it grow? Under the Trump administration, it's shrunk for three years running. In any case, the public plan's projected 67% individual market share would match that of traditional Medicare vs. Medicare Advantage, which is trending the other way: Medicare Advantage is projected to hit 40% in a few years. That market share might be possible, given the public plan's almost unlimited provider access. But in many markets, again, it might not be the cheapest plan . Perhaps its greatest threat to providers' income would be the extent to which it pushes down payment rates among private insurers compelled to compete.
All told, the enrollment projections -- 40.7 million in 2024, 43.3 million in 2033 -- seem inflated. One "tell" is the comparison the report raises between Medicare-X and the Urban Institute's Healthy America Plan. As the AHA report acknowledges, the Healthy America authors (Linda Blumberg, John Holahan and Stephen Zuckerman) project a smaller reduction in ESI coverage under their plan (18 million) than the authors of this report project for Medicare-X (23 million). But Healthy America strongly boosts ACA subsidies and coverage levels and makes employees with access to ESI eligible for the public plan's (and individual market's) income-based subsidies. There is thus ample reason to anticipate that large numbers of people with ESI offers would find the individual market + public option more attractive. Yet the authors anticipate a significantly smaller migration from ESI than do the KNG analysts under Medicare-X.*****
Also somewhat disingenuous is the contrast cited between the estimated coverage gain under Medicare-X and the coverage gain estimated by the Urban Institute if all states accepted the ACA Medicaid expansion and the various forms of ACA sabotage enacted by the Trump administration and Republican Congress (cuts to advertising and enrollment assistance, CSR reimbursement cutoff, repealing the individual mandate penalty) were rolled back. There's nothing in Medicare-X to prevent those steps; the coverage gains would presumably be cumulative, not mutually exclusive.
It's noteworthy that the AHA commissioned an analysis of the most restrictive of the bills that offer a new public plan to all citizens and legally present noncitizens under age 65. The AHA is part of the Partnership For America's Health Care Future a coalition of healthcare industry groups primed for all-out war against Medicare for All -- and apparently determined to nip any expansion of public health insurance in the bud. They might have gone after the Choose Medicare Act, which creates a public plan with a buy-in for both employers and employees and boosts subsidy levels. But that plan would negotiate rates with providers, with the top bound set as the average rate paid by commercial marketplace insurers. The bill thus lacks the cost control that most observers think is essential to a bid to expand coverage, while preserving the income that various industry groups are determined to preserve.
Update, 5/30: The AHA and healthcare providers generally have somewhat more cause to worry about the updated Medicare-X bill introduced in late April. Version 2.0 removes the ACA income cap on subsidies, capping premiums for enrollees at incomes above 600% FPL at 13% of income, and modestly boosting premium subsidies at lower incomes. The bill maintains the wall barring those with access to "affordable" employer insurance from subsidies, however -- so while it might expand the individual market, and draw a large share of that market into a government-run plan, it would likely leave ESI intact.
Related: The Choose Medicare Act: How strong is this public option?
----
* The projection, more precisely, is that 36.5 million will leave private coverage and 1.5 million will take it up.
** This Commonwealth Fund estimate does not include self-funded plans. According to the Kaiser Family Foundation's 2018 Employer Health Benefits Survey, 15% of small employers (3-49 employees) consider their plans self-funded (p. 171). That percentage applied to the Commonwealth Fund estimate would suggest about 16 million enrollees in small group plans as of 2016 -- at which point the market had been shrinking since ACA implementation.
*** One might imagine the small group market expanding to take advantage of Medicare-X, but those new enrollees would not come from the existing small group market, or out of the counterfactual for small group market size under current law.
**** As I've noted previously Medicare-X does call for establishing two public plan versions at each metal level and so opens the possibility for manipulating price spreads from the benchmark, i.e. creating sharp discounts in each metal level. But that presumes no meaningful price competition from commercial plans and would be an odd, backhanded way to improve ACA subsidies.
***** The KNG analysis addresses this difference in projected impact on ESI, but does not address the floodgate opened in Healthy America by allowing employees with affordable ESI offers to acess subsidies for public plan/individual market coverage:
The American Hospital Association has commissioned a study by KNG Health Consulting that fires a warning shot against any expansion of public coverage that draws people out of the private market.
The report purports to show that the Medicare-X Choice Act introduced in 2017 by Senators Bennet and Kaine, establishing a strong national public option in the ACA marketplace, would cut healthcare spending by $1.2 trillion over ten years. Hospital spending would account for $774 billion of the total. The study also forecasts that 5.5 million uninsured people would gain coverage.
As U.S. per capita healthcare spending is more than double the OECD average, one might think that cutting costs while increasing coverage would be cause for celebration. Of course the AHA doesn't see it that way, and warns of dire results for hospitals resulting from some 35 million people* shifting from private to a public plan that pays Medicare rates for services. Leaving aside assumptions about hospitals' adaptability, and the study's calculations with respect to hospital revenue, its assumptions about the impact of Medicare-X on enrollment in private insurance strike me as dubious.
Medicare-X would create a national public option within the ACA exchange, offering ACA-compliant coverage at ACA metal levels. At first the plan would only be offered in low-competition counties, but it would be available in all counties by 2023 -- and open to small employers in 2024. The new plan would pay Medicare rates to providers, and providers that accept Medicare would be required to accept it. The bill does not enrich ACA subsidies or expand eligibility for them. Unlike the Medicare for America Act, Medicare-X does not allow a subsidized buy-in for employees if their employers offer affordable ACA-compliant insurance.
The AHA analysis nonetheless assumes that by 2024, Medicare-X would draw some 35 million people out of commercial coverage. That's well over twice the size of both the current individual market (~14.4 million in 2018) and the small group market (~13.6 million** in 2016). Here's the full breakdown of forecast enrollment in Medicare-X, with movement out of commercial insurance by 2024 highlighted:
The public option might indeed be attractive to small businesses offering small group coverage -- but even if that entire market transferred en masse to Medicare-X in one year, assuming no market shrinkage since 2016 (and including self-funded plans, per note below), another 7-odd million would have to transfer out of large group ESI.*** Again, though, those for whom the ESI premium for solo coverage costs less than 10% of income would not be subsidy-eligible. While unsubsidized premiums in Medicare-X would potentially be low compared to average current ACA marketplace offerings, in many markets they wouldn't necessarily be the lowest at each (or any given) metal level. Medicaid MCOs have a strong presence in the ACA marketplace, and often they presumably pay provider rates closer to Medicaid than Medicare.
It's possible that with a bolstered ACA marketplace, some large employers, likely those with a lot of low wage workers, would drop coverage. But as Kaiser's Cynthia Cox pointed out to me, the report explicitly states that it does not model employer behavior, i.e. the possibility that a changed marketplace would induce some to drop coverage. Moreover, since Medicare-X does not change subsidized premium levels for benchmark silver plans, it is not likely to radically affect costs -- premiums or OOP**** -- for subsidized enrollees, and so should not induce many employers to conclude that their employees would be better off in the marketplace than in the plans they had been offering to date.
That lack of change in ACA subsidy structure brings us to the report's projections for the non-group (individual) market. The report projects that 12.6 million individual market enrollees will move to the public plan. That's almost as many people as the total currently enrolled in the individual market. It's not clear why the market is projected to reach 21 million in 2024 under current law -- what is to make it grow? Under the Trump administration, it's shrunk for three years running. In any case, the public plan's projected 67% individual market share would match that of traditional Medicare vs. Medicare Advantage, which is trending the other way: Medicare Advantage is projected to hit 40% in a few years. That market share might be possible, given the public plan's almost unlimited provider access. But in many markets, again, it might not be the cheapest plan . Perhaps its greatest threat to providers' income would be the extent to which it pushes down payment rates among private insurers compelled to compete.
All told, the enrollment projections -- 40.7 million in 2024, 43.3 million in 2033 -- seem inflated. One "tell" is the comparison the report raises between Medicare-X and the Urban Institute's Healthy America Plan. As the AHA report acknowledges, the Healthy America authors (Linda Blumberg, John Holahan and Stephen Zuckerman) project a smaller reduction in ESI coverage under their plan (18 million) than the authors of this report project for Medicare-X (23 million). But Healthy America strongly boosts ACA subsidies and coverage levels and makes employees with access to ESI eligible for the public plan's (and individual market's) income-based subsidies. There is thus ample reason to anticipate that large numbers of people with ESI offers would find the individual market + public option more attractive. Yet the authors anticipate a significantly smaller migration from ESI than do the KNG analysts under Medicare-X.*****
Also somewhat disingenuous is the contrast cited between the estimated coverage gain under Medicare-X and the coverage gain estimated by the Urban Institute if all states accepted the ACA Medicaid expansion and the various forms of ACA sabotage enacted by the Trump administration and Republican Congress (cuts to advertising and enrollment assistance, CSR reimbursement cutoff, repealing the individual mandate penalty) were rolled back. There's nothing in Medicare-X to prevent those steps; the coverage gains would presumably be cumulative, not mutually exclusive.
It's noteworthy that the AHA commissioned an analysis of the most restrictive of the bills that offer a new public plan to all citizens and legally present noncitizens under age 65. The AHA is part of the Partnership For America's Health Care Future a coalition of healthcare industry groups primed for all-out war against Medicare for All -- and apparently determined to nip any expansion of public health insurance in the bud. They might have gone after the Choose Medicare Act, which creates a public plan with a buy-in for both employers and employees and boosts subsidy levels. But that plan would negotiate rates with providers, with the top bound set as the average rate paid by commercial marketplace insurers. The bill thus lacks the cost control that most observers think is essential to a bid to expand coverage, while preserving the income that various industry groups are determined to preserve.
Update, 5/30: The AHA and healthcare providers generally have somewhat more cause to worry about the updated Medicare-X bill introduced in late April. Version 2.0 removes the ACA income cap on subsidies, capping premiums for enrollees at incomes above 600% FPL at 13% of income, and modestly boosting premium subsidies at lower incomes. The bill maintains the wall barring those with access to "affordable" employer insurance from subsidies, however -- so while it might expand the individual market, and draw a large share of that market into a government-run plan, it would likely leave ESI intact.
Related: The Choose Medicare Act: How strong is this public option?
----
* The projection, more precisely, is that 36.5 million will leave private coverage and 1.5 million will take it up.
** This Commonwealth Fund estimate does not include self-funded plans. According to the Kaiser Family Foundation's 2018 Employer Health Benefits Survey, 15% of small employers (3-49 employees) consider their plans self-funded (p. 171). That percentage applied to the Commonwealth Fund estimate would suggest about 16 million enrollees in small group plans as of 2016 -- at which point the market had been shrinking since ACA implementation.
*** One might imagine the small group market expanding to take advantage of Medicare-X, but those new enrollees would not come from the existing small group market, or out of the counterfactual for small group market size under current law.
**** As I've noted previously Medicare-X does call for establishing two public plan versions at each metal level and so opens the possibility for manipulating price spreads from the benchmark, i.e. creating sharp discounts in each metal level. But that presumes no meaningful price competition from commercial plans and would be an odd, backhanded way to improve ACA subsidies.
***** The KNG analysis addresses this difference in projected impact on ESI, but does not address the floodgate opened in Healthy America by allowing employees with affordable ESI offers to acess subsidies for public plan/individual market coverage:
The reason for our higher estimate of ESI crowd out from a public plan is less clear. The Urban Institute estimates ESI premiums dynamically. To the extent a public plan reduces ESI premiums because of a healthier risk pool, Urban’s model would make ESI more attractive to consumers than in our model. Our results indicate that take-up of the public plan for those on ESI in the baseline is sensitive to the public plan prices paid to providers. The differential between commercial and Medicare prices used by the Urban Institute is unclear.
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