Wednesday, April 24, 2019

Medicare-X 2.0 deserves a second look

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As originally introduced by Senators Bennet and Kaine in October 2017, the Medicare-X Choice Act (summary here) placed a big fish --  a strong public option -- in a small pond, the ACA marketplace.

The "Medicare-X" public option would first be introduced into low-competition areas in the ACA marketplace, and then into all rating areas. The public plan would pay Medicare rates to providers, and providers who accept Medicare would be required to accept it. But in the first iteration, eligibility for subsidies adhered to ACA criteria, and the subsidies themselves were not improved. While it might improve affordability for the unsubsidized, its appeal to subsidized enrollees might be more limited, though the full Medicare provider network might be a powerful draw. As to premium, however,  I noted recently
By conforming to current ACA subsidy structure, Medicare-X runs afoul of the ACA paradox: measures that reduce unsubsidized premiums do not improve affordability for the two thirds of current individual market enrollees who receive subsidies. In fact, premium reductions often reduce discounts by compressing price spread between benchmark plans, against which subsidies are set, and cheaper plans, to which the subsidy can be applied.
The bill did phase in a small business buy-in, and that might be attractive, as the unsubsidized price might be a relative bargain for small businesses, and the provider network would be unbeatable. It might thus expand the small group market,  which enrolled an estimated 13.6 million people in 2016.

The update introduced this month (bill here, summary here) widens the pool of potential beneficiaries, combining measures that expand subsidy eligibility and reduce unsubsidized premiums -- potentially offsetting the cost of subsidizing more enrollees. It's a limited and cost-conscious expansion of benefits that might make the ACA work more as designed.

Bye bye subsidy cliff

The most important change is removing the ACA's income cap on subsidy eligibility, currently 400% of the Federal Poverty Level (FPL), or roughly $49,000  for an individual and $100,000 for a family of four. Premiums for those who lack access to other forms of insurance (e.g., employer-sponsored insurance) would be capped at 13% of income for a benchmark silver plan. For enrollees with incomes in the current subsidy range, i.e. up to 400% FPL, the percentage of income required for a benchmark plan would drop 0.5% in each income band -- actually closer to 1% at 300-400% FPL, to 9% of income. Potentially offsetting the cost of that subsidy boost, a federally funded reinsurance plan would run for three years, reducing premiums and therefore subsidies.

To what effect?

The public option itself should reduce unsubsidized premiums; reinsurance would reduce them further; and expanded enrollment, still further. Yet the only people who would benefit directly from lower unsubsidized premiums would be those with access to other insurance deemed affordable -- i.e., mostly, people with access to employer-sponsored insurance. We would all benefit as taxpayers, however, if premiums and therefore subsidies come down and stabilize at lower levels.

One mystery: why the bill repeats the original ACA error of making a reinsurance program temporary. Another mystery: why it doesn't fix the ACA's family glitch, which renders employees and their families ineligible for marketplace subsidies if individual coverage offered by the employer costs less than about 10% of income (fluctuating slightly by year), even if the family coverage costs much more than that.

After the premium spikes of 2017 and 2018, unsubsidized enrollment in the individual market has been shrinking rapidly -- by about 3 million since 2016, according to a recent CBO estimate, from 9 million to 6.2 million (combining off-exchange and unsubsidized on-exchange). The new Medicare-X bill should reverse that trend and redress one of the ACA's sharpest failures: unaffordability at incomes over 400% FPL. The bill would also modestly reduce premiums at incomes under 400% FPL -- and make an unlimited network available at subsidized rates, shaking up the marketplace trend toward narrow networks.

The bill likely would not dramatically improve affordability for those below 400% FPL, however -- and via reduced premium spreads might actually degrade it, at least with regard to premiums.  And takeup of ACA marketplace plans has been poor at subsidized income levels as well as unsubsidized, indicating a need to reduce both premium and out-of-pocket costs.

Payment innovation and prescription drug price negotiation

The Medicare-X bill devotes a good deal of space (relatively - it's a short bill)  to enabling and encouraging the HHS secretary to deploy a full range of payment reform tools currently being phased into Medicare -- promoting medical homes, Accountable Care Organizations, value-based payment, integration with food, housing, transportation and income assistance, and telemedicine. HHS is empowered to employ these tools differently in different regions to wring cost savings and care improvement in targeted markets. Those options would presumably include the array of new primary care payment options just introduced by CMS, designed to make practices take on more responsibility for improving outcomes. The public option would thus combine straight rate-setting (Medicare rates) with Medicare's drive to pay for value, however that plays out.

Finally, Medicare-X takes an abbreviated approach to reducing prescription drug costs. In one sentence*, it simply repeals the provisions in the law that created Medicare Part D that forbid HHS from negotiating directly with drug manufacturers and from creating a formulary, i.e. refusing to cover certain drugs. It thus empowers HHS to negotiate drug costs for Medicare and Medicare-X but doesn't require the agency to do so, or establish a process for doing so. Whether this final bill provision is just a placeholder or a radically minimalist approach to a major policy change, I don't know.

Doing something right?

The American Hospital Association, dead-set along with all sectors of the healthcare industry against expanding the footprint of public insurance, commissioned a study that forecast that Medicare-X (2017 version) would draw some 35 million people out of the employer-sponsored market, inducing some people to choose the unsubsidized public option over subsidized ESI.  That forecast, I've argued, seems far-fetched.  The updated bill changes the picture somewhat. The 2019 version might take a considerably bigger bite out of the individual market. It is also likelier to induce some people with access to employer-sponsored insurance to choose unsubsidized plans in the individual market. But it seems to me that a very small number of people would make that choice.

As rewritten, Medicare-X abjures two measures that would likely reduce the ranks of the uninsured and underinsured. First, it leaves the ACA subsidy structure only lightly modified, keeping the silver benchmark in place, and not touching Cost Sharing Reduction subsidies. Second, it pretty much keeps the door between the employer-sponsored market and the individual market closed by not extending subsidy eligibility to those with access to employer-sponsored insurance. Still removal of the ACA income cap on subsidies is a big step -- and so is the introduction of a strong public option, as AHA hostility indicates.

Update, 4/26: Jon Walker points out that the bill has a self-defeatingly slow rollout: launch of public option in uncompetitive areas only, two years after enactment; launch in all rating areas five years after enactment; open to small businesses six years after enactment. Assuming that Democrats could pass something like this in 2021, all elements should be enacted within four years.

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* Here is the provision empowering HHS to negotiate drug prices:

SEC. 5. AUTHORITY TO NEGOTIATE FAIR PRICES FOR MEDICARE PRESCRIPTION DRUGS.

8 (a) IN GENERAL.—Section 1860D–11 of the Social
Security Act (42 U.S.C. 1395w–111) is amended by striking subsection (i).

And here's the provision in law it vaporizes:

(i) Noninterference

In order to promote competition under this part and in carrying out this part, the Secretary-
(1) may not interfere with the negotiations between drug manufacturers and pharmacies and PDP sponsors; and
(2) may not require a particular formulary or institute a price structure for the reimbursement of covered part D drugs.

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