Wednesday, April 03, 2019

Which Democratic healthcare reform bills offer the most affordable coverage to the most people?

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Drew Altman, president and CEO of the Kaiser Family Foundation, has a message for elected officials and candidates. With regard to healthcare policy
it’s the candidates who can connect their plans and messages to voters’ worries about out of pocket costs who will reach beyond the activists in their base. And the candidates aren’t speaking to that much, at least so far.   
That claim is based mainly on Kaiser polling, which finds that 48 percent of voters worry about paying their health care bills, and half of people who are sick have trouble paying their medical bills.

The extent to which various Democratic bills to improve or replace the ACA address the demand for affordability can be viewed in two dimensions. First is the degree to which they make coverage more affordable and reduce out-of-pocket costs for the ACA's original intended beneficiaries: those who lack access to other affordable insurance, mainly employer-sponsored insurance (ESI). Second is the degree to which they impact affordability for the 150-plus million current ESI enrollees (roughly 56% of the population under age 65).

The bills affect the affordability of ESI in three ways.
  • Medicare for All would put everyone on a public plan and basically eliminate all costs for individuals other than taxes (which would theoretically be lower than current average individual costs). 
  • Medicare for America would tear down the wall between private and public insurance by enabling employees as well as employers to buy into the public plan at income-adjusted cost. 
  • More limited bills establishing a strong public option in the individual market (deemed "Medicare") would enable employer buy-ins, potentially putting downward pressure on costs in the ESI market, but would not subsidize employees whose employers offer private insurance deemed affordable. 
  • Straight ACA enhancement bills, increasing subsidies in the individual market but not changing its structure, would not directly affect the ESI population but would extend affordability in the individual market by removing the income cap on subsidy eligibility.
To varying degrees, too, bills establishing a public option that doctors who accept Medicare must accept address a vital x-factor in out-of-pocket costs: balance billing, in which people receiving care from in-network facilities and providers receive bills from out-of-network providers who participate in their care.

A third dimension of the degree to which these bills affect affordability is the degree to which they reduce total healthcare costs on a per capita basis, including costs paid by government. Most (not all) Medicare expansion/public option bills increase the population enrolled in plans paying Medicare as opposed to commercial rates. Most also establish some kind of drug pricing commission enabling Medicare to negotiate or regulate prescription drug prices.

Below, a bestiary of various bills establishing a new public option for people under age 65, generally deemed "Medicare" and in all cases providing enrollees with access to all providers who accept Medicare -- i.e., nearly all providers (unless the bill stimulates a parallel market providing access to high end Medicare refuseniks).  Also included: "ACA 2.0" bills that increase subsidies but don't establish a public plan per se. I omit Medicare for All because a) its posture is simple: no one pays anything for healthcare but taxes, and b) I consider it Utopian and unlikely to pass. I begin with the ACA 2.0 bills, then move through select (not all) public option/Medicare expansion bills in ascending order of their likely impact.

"ACA 2.0" bills

It's been evident since the bill that became the ACA was in progress in the Senate that the subsidies were inadequate -- particularly with regard to out-of-pocket costs. In the ACA marketplace, the benchmark plan has an actuarial value (AV) of 70%, meaning it's calculated to pay 70% of the average user's yearly medical costs -- and considerably less for most enrollees, since enrollees with very expensive conditions skew the average. Benchmark silver plans now carry single person deductibles averaging more than $4,000; cheaper bronze plan deductibles average over $6,000.

While Cost Sharing Reduction subsidies (CSR) strongly mitigate these costs for people with incomes up to 200% of the Federal Poverty Level (and much more modestly for people in the 201-250% income range), out-of-pocket costs are quite high for almost all enrollees with incomes above 200% FPL.  The percentage of income required to buy a benchmark silver plan -- again, with deductibles averaging $4,000, or modestly less at 201-250% FPL -- is also too high, ranging from 6-10% at 201-400% FPL and often to astronomical levels for the unsubsidized (above 400% FPL).

Recognizing this inadequacy, in August 2015 Urban Institute scholars Linda Blumberg and John Holahan proposed a revamped subsidy schedule that would reduce premiums and out-of-pocket costs at every income level. For those with incomes above the current subsidy threshold of 400% FPL, premiums for a benchmark plan covering 80% of the average enrollee's costs would be capped at 8.5%.

Bills introduced in 2018 in the House by Rep Frank Pallone (D-NJ) and in the Senate by Elizabeth Warren (D-MA) precisely reproduced Blumberg and Holahan's enhanced subsidy schedules, which would improve current ACA levels as follows:

By capping premiums as a percentage of income at all income levels, and rendering coverage with at least 80% AV (avg deductible $1,320 in the 2019 ACA marketplace) affordable to all who are eligible for subsidies, these bills would likely vastly expand takeup in the individual market, perhaps to levels originally forecast by the CBO (to 25-30 million, about double current enrollment).

For the most part, however, people with access to ESI deemed affordable by ACA standards would remain shut out -- with one important exception. Both bills end the ACA's so-called "family glitch," whereby if an employer's offer of insurance is deemed affordable for the employee alone, the family is ineligible for marketplace subsidies even if family coverage costs more than the ACA's affordability threshold, 9.86% in 2019. In Warren's bill, the family is subsidy-eligible if family coverage exceeds 8.5% of income. In Pallone's 2018 bill, the threshold is 9.5%. A 2016 Urban Institute study estimated that ending the family glitch as these bills do increase marketplace enrollment by 3.6 million people -- most of them swapping hard-to-afford employer-sponsored family coverage for marketplace.

These bills would have a significant impact on affordability for perhaps 25-30 million people -- and, given their improvement on ACA marketplace actuarial value, would reduce OOP for all but the low-income 3 million or so who currently obtain silver plans with 94% AV. The Warren bill also adds stricter standards for provider network adequacy, reducing exposure to balance billing, though not ending the practice. But these plans wouldn't affect OOP for those with access to ESI, except for the few who take advantage of the ending of the family glitch.

An important caveat re the Pallone bill: a recently reintroduced version drops the CSR boost. I suspect that's because Democrats see some possibility of a bipartisan deal to separately appropriate funds for CSR, since Trump's cutoff of direct CSR reimbursement is costing the Treasury tens of billions per year, as outlined in this post.  Democrats may be in a position to demand improvements to CSR in exchange for direct funding of it, as that funding would end the windfall subsidy boosts created by silver loading (pricing the cost of CSR into premiums for silver plans only*) in 2018 and 2019.

Medicare buy-in/Public option bills

Several Democratic bills introduced since 2017 create a new public option that all providers who accept Medicare are required to accept. All except for Ben Cardin's bill (S.3, 2019) refer to the new program as "Medicare."

Medicare at 50

The Medicare at 50 Act,  introduced in February by Senator Debbie Stabenow (D-MI), allows people aged 50-64 to buy into Medicare. Those who qualify for ACA subsidies -- i.e., have incomes below 401% FPL and lack access to ESI, Medicaid or other public insurance -- can apply those credits to the Medicare premium. Those with access to ESI would have to pay full freight for Medicare, which isn't cheap. Thus only a few million people would have new Medicare access.

Enrollees can choose traditional fee-for-service Medicare (Parts A, B, D) or a Medicare Advantage plan. No annual cap on out-of-pocket costs is added to traditional Medicare, so those who choose it will forgo that ACA marketplace benefit, which currently caps costs at about $7,900 per person -- unless they qualify for Cost Sharing Reduction (CSR), which the bill tacks onto traditional Medicare for this age group. That's a windfall for those eligible for the strong CSR available to people with incomes up to 200% FPL. They can obtain traditional Medicare, with access to virtually all healthcare providers, along with an annual out-of-pocket cost cap of $2450 per person.

Enrollees in traditional Medicare can buy Medigap policies on a guaranteed issue basis. With no OOP cap, traditional Medicare would not qualify as ACA-compliant coverage -- except that the bill specifies that it shall.

The bill will not reduce OOP per se, unless Medicare Advantage plans, which have AV estimated at a bit over 80%, prove to be better deals than marketplace plans for people who don't qualify for CSR. It doesn't do anything for people with access to ESI or Medicaid.


[UPDATE 4/25: Medicare-X was reintroduced on April 2 (bill summary here). The new version removes the ACA subsidy cliff, capping premiums for a benchmark plans at 13% of income at 600% FPL and modestly reducing premiums for the benchmark plan at lower incomes. An assessment of the new version is in this post.]

The Medicare-X Choice Act of 2017, introduced by Senators Bennet (D-CO), Kaine (D-VA) and Feinstein (D-CA), and soon to be reintroduced, creates a strong public option in the ACA marketplace -- that is, a plan paying Medicare rates to providers and requiring providers who accept Medicare to accept the new plan. It does not, however, improve subsidies in the ACA marketplace, nor does it enable people with access to affordable ESI to qualify for subsidies. It does phase in a small business buy-in, and in that way it could extend access to affordable coverage, potentially expanding the small group market, which enrolled an estimated 13.6 million people in 2016.

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.

A public option paying Medicare rates to providers might  boost enrollment among unsubsidized enrollees, which dropped sharply (by more than 2 million) in 2017 and 2018.  It might also reduce OOP for unsubsidized customers at the margins by a) shielding them from balance billing and b) reducing the rates at which medical costs are billed, including the enrollee's share (e.g., 30% of $5,000 is less than 30% of $6,000).

But narrow network plans run by insurers whose core business is in the managed Medicaid market are quite common in the ACA marketplace, and they probably pay providers below Medicare rates. Medicare-X would have the competitive advantage of a nearly unlimited network, but it wouldn't necessarily reduce OOP compared to the narrow network plans -- at least for enrollees in the latter who manage to stay in-network. Those narrow network plans often have high deductibles, but also a wide range of low-copay services not subject to the deductible.

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 would draw some 35 million people out of the employer-sponsored market, inducing some people to choose the unsubsidized public option over subsidized ESI.  This forecast, I've argued, seems far-fetched.

The Choose Medicare Act

The Choose Medicare Act introduced by Senators Jeff Merkley (D-OR) and Chris Murphy (D-CT) last April (summary here) cracks the door wider between ESI and the individual market than does Medicare-X, allowing businesses of all sizes to buy into a public option. Importantly, it also raises the threshold for subsidy eligibility in the ACA marketplace  from 400% to 600% FPL, also raising the ACA benchmark plan level from silver to gold -- that is, from 70% AV to 80% AV. It also extends Cost Sharing Reduction (CSR) to enrollees with incomes up to 300% FPL (up from 250% FPL under current law) and boosts the actuarial values at 200-300% FPL.**

Like the ACA 2.0 bills, Choose Medicare could double the size of the individual market. It might also draw some employers into the public plan. On the cost control front, however, the bill has a serious weakness -- a major concession to healthcare providers -- which may explain why the AHA targeted the otherwise more limited Medicare-X bill in its commissioned study. HHS is directed to negotiate provider payment rates that are not lower than current Medicare -- and not higher than average rates paid by commercial insurers in the exchange. That range likely would produce rates considerably higher than current Medicare rates, largely undermining the cost advantage and transition toward a de facto all-payer rate. The rates actually negotiated might determine how attractive the plan is to employers, who generally pay almost twice Medicare rates to hospitals and about 128% of Medicare to physicians.

The Medicare for America Act

The Medicare for America Act, introduced last December by Reps Rosa DeLauro (D- CT) and Jan Schakowsky (D-IL) and soon to be reintroduced, is a halfway house -- or two-thirds-way house -- to single payer. This is the one bill other than Medicare for All bills that truly bids to give all Americans access to an affordable public plan, in that it allows employees to buy in on a subsidized basis if their income qualifies them for subsidies, even if their employer offers affordable private insurance.  It also allows all employers to buy in by paying an 8% payroll tax.

Medicare for America (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 preserves a role for private insurance, via Medicare Advantage and the remaining option for employers to provide private insurance. It seems not to be designed to cause ESI to wither on the vine, in that it stipulates that healthcare providers must accept the public plan's payment rates (set somewhat provisionally at 110% of current Medicare, with some variations) from private insurers.

Like Choose Medicare, Medicare for America raises AV in the benchmark plan in the individual market (where Medicare for Advantage competes with the new public plan). The public plan pays 80% of enrollees' incurred costs up to a low out-of-pocket maximum, and 100% of costs for chronic disease management, preventive care and generic drugs. That would translate to AV well above 80%.  It extends a premium subsidy schedule --as yet unspecified -- to 600% FPL and caps premiums for enrollees above that threshold at 9.69% of income.

Enrollees with incomes up to 200% FPL pay zero premium. Deductibles are low -- reportedly to be eliminated in the pending update -- and out-of-pocket maximums are set on a sliding scale that tops out at $3,500 per individual/$5,000 per family. Employers who choose to offer private coverage must cover at least 70% of the cost of a plan that provides at least 80% AV.  Long-term care coverage is universal.

Medicare for America would guarantee affordable insurance -- including affordable out-of-pocket costs -- to everyone. At an income of 600% FPL -- $72,840 in this year's ACA marketplace -- an enrollee in the public plan would pay 9.69% of income in premiums plus a maximum of $3,500 in OOP -- another 4.8% of income. As a ceiling, that's much better than the current reality in the U.S., discounting any additional tax burden - which the bill aims to impose mainly on businesses and high income taxpayers.  And most people would pay much less. The 30% of the population with incomes under 200% FPL would pay nothing. Median income in the U.S. is a bit over 300% FPL. If the Blumberg-Holahan scale provided above is adopted (or some slight variation of it), people at the median would pay about 7% of income for premiums, with a maximum of somewhere between 5-10% on out-of-pocket costs.

Tax burden aside, implementation of Medicare for America would vastly reduce spending on premiums and OOP for most people. A recent University of Pennsylvania study found that the premiums alone for ESI constitute an average of 30% of employees' compensation, when the employer contribution is taken into account.

There are losers under all healthcare reform schemes. Under Medicare for America, affluent seniors in future would pay more than they do now. At present, Medicare Part A (hospital coverage) is free, while Part B (physician services) is just $136/month for incomes up to $85k per individual/$170k per couple and tops out at $461/month at the highest income level ($500k individual/$750k couple). Part D (drug) coverage adds another $33/month, though for higher income enrollees it can slide up to a bit over $100/month. Most affluent seniors also purchase high-end Medigap policies for perhaps another $200/month. Those policies cover virtually all out-of-pocket costs outside of drug and nursing care.

Under Medicare for America, an individual earning $85k would pay $686 per month, with OOP topping out at $3,500 per year. Medigap would still be available, if a private market survives. The premium, however, would include long-term care insurance, which is currently astronomical in a dysfunctional private market. No one would have to bankrupt themselves into Medicaid coverage for nursing care -- our current system of LTC coverage (Medicaid pays for over 60% of nursing home enrollees). I suspect, though, that the new version will cap premiums for seniors at a lower level than 10% of income.

*               *               *

Of all these bills, only Medicare for America effectively guarantees truly affordable coverage for all Americans. The real tripwire to transformation is allowing people with access to ESI that qualifies as "affordable" by current standards to opt into a comprehensive public plan that costs no one more than 10% of income and most people much less. More limited public option bills that leave senior Medicare and Medicaid alone could do that, but none profiled above do so.  

The three potentially transformative components of a strong public option are 1) paying low but sustainable provider rates, 2) providing comprehensive coverage and 3) being available on affordable terms to all.  That was the original concept floated in the early 2000s, then watered down by degrees until it disappeared entirely in the third trimester of the ACA's gestation. Standing up a strong public option of this sort seems to me a reachable goal to which Democrats should commit themselves.

* "Silver loading" refers to concentrating the cost of CSR subsidies (directly reimbursed to insurers by the federal government as stipulated by the ACA until Trump stopped payment in October 2017) in the premiums of silver plans, since CSR is available only with silver plans. Since premium subsidies, designed so that the enrollee pays a fixed percentage of income, are set to a silver plan benchmark (the second cheapest silver plan), inflated silver premiums create discounts for subsidized buyers in bronze and gold plans. And in states that allowed insurers to offer silver plans off-exchange with no CSR load, unsubsidized enrollees were protected from CSR costs, theoretically at least

* *  The bill slightly drops CSR value at 133-150% FPL, from 94% AV to 92%.

1 comment:

  1. Thanks for an excellent summary.

    The Medicare for America plan has excellent features, but it will be a huge challenge to finance it. The plan will be an absolute magnet for less healthy persons:

    - chronic care management will not be subject to a deductible (France does this too...diabetic meds are free)

    - employers with an older work force can insure them for just 8% of payroll

    - anyone who thinks they may need long term care can buy cheap insurance on a guaranteed issue basis.

    The proposed increase in the Medicare tax will not be small. Each 1% increase in the Medicare tax brings in about $80 billion, so I could easily see an 8% increase.