Saturday, March 02, 2019

The public option we really need

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I have argued, recently and also over time, that a public option introduced into the current ACA marketplace without a change in marketplace structure can only do so much good

The marketplace's dominant flaw is that it's under-subsidized, and a public option won't make coverage more affordable for subsidized buyers. If you're a solo person earning $31,000 per year and have to pay $220/month for a public plan with an actuarial value of 70% -- likely with a $3000 deductible --that's not going to look much more attractive than comparable private plans. The public plan may drive down base premiums and so help unsubsidized buyers.

The upside would be especially limited in the case of a Medicaid buy-in, as Medicaid plans are narrow network. The chief appeal of Medicaid is zero-to-miniscule out-of-pocket costs. A Medicaid buy-in at 70% actuarial value largely eliminates that advantage (though not entirely, as the enrollee is on the hook for 30% of care that's priced lower than in most -- not all -- marketplace plans).*

On the other hand, a strong public option paying Medicare rates, and requiring providers who accept Medicare to accept it, at least gives enrollees a competitively priced wide network in a market dominated by narrow network plans. It also presumably would offer much better certainty of coverage of actual claims in a marketplace with an average 19% claims denial rate.

A game-changer would be introduction of a strong, Medicare-like public option combined with improvement of the ACA's subsidy structure, starting with an 80% AV benchmark for people who don't qualify for further cost reduction.  80% AV is slightly below the norm for both employer-sponsored insurance and Medicare.

A market remake of that sort might retroactively establish the original conception of the public option, which was to create a market for people under age 65 something like that of current Medicare, where a reliable public plan is the pattern against which private alternatives define themselves. More specifically, the public plan would offer an all-but-unlimited network, and private alternatives would compete by offering a tradeoff of a narrower network either at a discount or with added benefits or both.

To compete, private plans would have to pay essentially Medicare rates to providers, as Medicare Advantage plans do. They might be paid on a capitated basis by the federal government to ensure that, as Medicare Advantage plans are.

One element of the current Medicare market that would be missing is the competitive advantage afforded private plans by having a cap on out-of-pocket costs, which traditional Medicare lacks but the marketplace public option presumably wouldn't.

Such a public option, also as originally conceived, would provide a basis to transition the U.S. to an all-payer or even single-payer system. The key to system transformation beyond the (small) individual market would be employer and employee buy-in, with the premium capped as a percentage of income for all comers. The public option, once established, should be affordably available to everyone.

When such a public option has served tens of millions effectively for some years, it may be time to think about folding in Medicaid and integrating senior Medicare (disability Medicare might be integrated from the start). It seems to me, though, that we need proof of concept before retiring or transforming programs that currently serve half the population between them and are relatively cost effective.

What I'm describing is somewhere between the Medicare for America Act, which perhaps does too much too soon (e.g., enrolling all newborns three years after passage, and absorbing Medicaid and current Medicare) and the Choose Medicare Act, in which the new public option should pay Medicare rates, not negotiated rates capped at the average of current commercial plans, as currently written. The idea is to compress rates and move toward a blended rate, an all-payer rate. Giving employers the option to buy in to the public program via payroll tax, and employees the option to buy in at income-adjusted levels even if their employer offers adequate insurance, is the key to that kingdom.

Related: Medicare for All (who want or need it): A path for presidential candidates

* While a Medicaid plan injected into the current marketplace might be of limited value, a marketplace restructured to offer an array of managed Medicaid plans, offering more AV for the premium dollar, could work. It would probably have to essentially replace the state's individual market, as  the Basic Health Plans in New York and Minnesota do for people with incomes below 201% FPL who don't qualify for Medicaid. New Mexico's plan to offer a Medicaid buy-in only to those who don't qualify for ACA subsidies also seems viable.

1 comment:

  1. I have been following public option proposals for at least 9 years, and I always ask the same question:

    "How will premiums be determined?"

    Private sectors plans have to set premiums basically on their claims experience, after the first year. This can lead to huge increases.

    Medicare and Medicaid and the Basic Health plans of MN and NY can just say, "The premium is $140 or $50 a month," and taxpayers cover any losses.

    And I do not think that is a bad idea. But we need honesty on future costs to the taxpayers.