Monday, June 22, 2020

Going Japanese with Medicaid for the duration of the pandemic

As pandemic-triggered weekly job losses climbed into the millions and then tens of millions this spring, a cry went up among the healthcare-concerned on Twitter: now the catastrophic weakness of an employer-based health insurance system will hit home.

To which, a reasonable counter: what about Japan? The country has truly universal healthcare, and about 60% of the population is insured through employers. Almost all the rest are insured through residence-based plans run by local governments, including citizens' plans for the nonelderly, covering 27% of the population, and specialized plans for the elderly, covering 13%, according to the Commonwealth Fund. Those proportions are broadly similar to those of the U.S., leaving aside 10% of the U.S. population that was uninsured just prior to the pandemic.  In the U.S., about 54% of the insured population is covered by employer-sponsored plans, 22% by Medicaid, and 15% by Medicare.

Jon Walker has suggested that adapting Japanese model might provide the least disruptive route to universal coverage for the United States:
All adopting a Japanese type of system would require is for the U.S. to take what it is currently doing and heavily standardize it. The biggest change would be scrapping the individual non-employer-based market to put everyone on a government plan, but the individual market is the least popular part of our system anyway.
Americans, like the Japanese, have regionally-based government-run and financed health plans for the (mostly) non-elderly. They're known as Medicaid.*

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Somewhere between 10-30 million Americans will probably lose employer-based insurance in the current crisis. About half of them will be eligible for Medicaid, according to estimates by the Urban Institute and the Kaiser Family Foundation.

Above the income threshold for Medicaid eligibility (138% of the Federal Poverty Level, or $1468 for an individual), roughly another quarter of the newly unemployed may be eligible for subsidized private plans in the ACA marketplace.  But the skimpiness of marketplace subsidies makes takeup in the marketplace much lower than in Medicaid. The marketplace will be further marginalized by the $600 per week extra unemployment benefit provided through July 31 by the CARES Act, which counts as income in calculation of income-based marketplace subsidies (but not for Medicaid eligibility).**

ACA plans pay commercial rates to providers -- lower rates in many cases than those paid by employer-sponsored plans, which are about twice those paid by Medicaid, but still considerably higher than Medicaid or Medicare on average. The money saved by replacing the marketplace with a Medicaid buy-in could be plowed into reducing premiums and cost-sharing -- closer to levels offered to current, low income Medicaid enrollees -- at all income levels.

In Japan, a newly-unemployed individual can either continue on her former employer's plan or enroll in a residence-based plan. Coverage is mandatory, so everyone will find their way to one or the other (though the penalty for failing to maintain insurance is relatively light -- back-paying premiums when care is needed). In American terms, that would mean a choice between affordable COBRA and Medicaid of comparable quality to an employer-based plan.

In the current crisis, Democrats have floated two proposals that would make our porous safety net function more like the Japanese system. The first was to subsidize 100% of COBRA premiums for the duration of the crisis. The second, recently cut from a bill the House is set to vote on next week, would expand Medicaid eligibility to 200% FPL. Neither is going to happen.

For almost 20 years, a species of Democratic healthcare reform plans would stand up a national "public option," available on an affordable basis to all, to compete with employer-sponsored plans. Such plans -- including the Medicare for America bill and Biden's healthcare reform proposal -- are usually modeled on Medicare or at least branded as Medicare.

In the present crisis, however, Medicaid is the program in place that for the short term at least could cost-effectively get us closer to a system that, like the Japanese, relies primarily on employer-sponsored insurance but provides a smooth path to adequate, affordable insurance for those who lose access to an employer plan.

That would require not only opening Medicaid to people with higher incomes, but actively steering them to it. As I've explored in several recent posts, those who lose job-based insurance are often unaware of their options and can easily be led astray by existing enrollment channels, e.g.,  state health departments and their websites and the ACA marketplaces. Nor do state unemployment insurance departments point the newly unemployed toward insurance options, except in a handful of states. Ideally, enrollment would basically entail checking a box.

If the U.S. is to stop paying twice as high a percentage of GDP as the OECD average, commercial rates will have to come down. In Japan, regulation evolved from the opposite direction: the government first set the fee schedule for commercial plans, then mandated that the community-based plans pay the same rates.  Absent a requirement that providers accept public option rates from commercial insurers -- a requirement included in the Medicare for America bill -- forcing employer plans to compete with a robust public option available to everyone would probably force commercial rates down.

UPDATE, 8:00 p.m.: The Center for American Progress's Topher Spiro is proposing an emergency Medicaid expansion -- to 200% FPL, and for all who receive unemployment insurance or food stamps, with autoenrollment for the UI and SNAP beneficiaries.

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* Actually, since Medicaid was conceived as and is thought of as "poor people's insurance," states have seen fit to brand it with myriad other names -- BadgerCare, Husky Health, New Jersey Family Care, Medi-Cal, etc.

** In the 15 states that have refused to enact the ACA Medicaid expansion, the CARES Act will likely have the opposite effect.


  1. Excellent post, thanks. Two quick points:

    1. The Japanese penalty of paying back premiums if you stay uninsured is fair, but it might not be so small. If you go uninsured for 3 years you might owe $18,000 when you need care.

    2. Spiro's plan has merit, but will you get kicked off Medicaid if your income goes $1 over 200% of poverty? How often will this be measured? Most people are unaware of the terrible churn in Medicaid today.

  2. Also, congratulations on the attractive new format.