Monday, June 01, 2020

Medicaid For All Who Want It, Pandemic Edition

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The Kaiser Family Foundation has published an illuminating comparison of one possible and two existing means of subsidizing coverage for those who lose job-based health insurance in the Covid-19 pandemic. The two existing options are Medicaid, for which 47% of the newly uninsured are eligible by Kaiser's estimate, and subsidized marketplace coverage, for which 31% may be eligible. The third option, federal subsidization of 100% of COBRA* premiums, is provided in the HEROES Act passed by the House - and could conceivably win some Republican backing, as it would be a windfall for employers, healthcare providers and insurers as well as the individual recipients.

There's a certain symmetry between fully subsidized COBRA and Medicaid. Both options would be zero-premium in almost all cases (a few states have imposed premiums on higher income Medicaid enrollees). The tradeoff: employers' relatively robust provider networks versus Medicaid's zero-to-minimal out-of-pocket costs.

According to Kaiser, the average actuarial value of an employer-sponsored plan is 85%, meaning it's designed to cover 85% of the average enrollee's medical expenses. The average deductible in employer-sponsored insurance is $1,655, and the average out-of-pocket maximum for individuals is about $4,000.   AV for Medicaid is effectively 100% or very close to it.  Medicaid is also a much better deal for taxpayers. As Kaiser points out, private insurers (including self-funded employer plans) pay almost twice Medicare rates, and a still higher multiple of Medicaid rates.

The clear loser in this triple comparison is marketplace coverage, as for most of those who lose job-based coverage it requires higher premiums (which are zero in the other two options), higher out-of-pocket costs, and provider networks often as narrow as Medicaid's.

The marketplace would not be reduced to a relative bit player in the drive to insure the newly uninsured if the $600/week extra unemployment benefit provided for up to four months by the CARES Act did not count as income in marketplace subsidy calculations. But since it does count, that extra income will place most newly unemployed applicants' incomes** above the eligibility threshold for strong Cost Sharing Reduction subsidies, which reduce out-of-pocket costs to levels below those of most employer-sponsored plans for almost half of current enrollees (The extra $600/week does not count toward Medicaid eligibility).

As marketplace plans pay commercial rates to providers - albeit, to judge from network size, lower rates than employer plans -- they're also a worse deal for the federal government, which pays about three quarters of the premium on average for about five sixths of enrollees.

Kaiser's 3-way contrast makes it hard not to conclude that the marketplace is a fifth wheel -- or a nineteenth wheel -- in our unduly complex healthcare payment arrangements. It should have been a lower cost program paying government rates to providers -- essentially Medicaid, or managed Medicaid to the extent that policymakers prefer that -- with premiums and out-of-pocket costs scaled to income all the way up the income ladder. The individual market is dysfunctional, in that plans pay commercial rates without the deep pockets of employers to make that viable (though in fact, commercial rates are also increasingly unsustainable for employers and so have been eating into other compensation for two decades). Its restructuring in the ACA benefited providers, by preserving a market of some 13 million paying commercial rates, and insurers, by preserving and slightly expanding a market that's now profitable for them. But enrollees would have been better served by a program paying government rates to providers and spending the savings on richer subsidies.   Insurers, in fact, should be equally happy with an expanded managed Medicaid market, as existing managed Medicaid programs, which increasingly dominate state Medicaid contracts, are quite profitable for them (why state policymakers prefer managed Medicaid to fee-for-service Medicaid is another question).

To highlight the individual market's superfluity, imagine a pandemic emergency measure that gives the newly uninsured a choice of COBRA subsidization or Medicaid. Wide choice of providers -- or zero cost-sharing? Providing that choice would reduce the cost of COBRA subsidization -- and accustom a lot of people to zero-cost-sharing insurance  (or low-cost-sharing insurance, if out-of-pocket costs are introduced at higher income levels, as in Minnesota's Basic Health Program).

In fact, if Congress does opt to subsidize COBRA, about half of the newly uninsured will have this choice, as their incomes will qualify them for Medicaid, per estimates by Kaiser and the Urban Institute. (Perhaps a more realistic option than offering all who lose job-based coverage a choice between COBRA subsidization and Medicaid would be to offer COBRA subsidization only to those who don't qualify for Medicaid. That too would effectively laser out the marketplace as an option for those who lose job-based coverage.)

Next step, once the emergency has run its course: allow anyone to buy into Medicaid on a sliding scale, with the federal government assuming the whole cost beyond enrollees' premiums (which should be $0 up to, say, 200% of the Federal Poverty Level).

Establishing Medicaid For All Who Want It would push commercial rates down -- the only way employer plans could compete -- while probably pushing Medicaid rates up somewhat as the program becomes a middle class entitlement and enrollees demand more robust provider networks.

Universal Medicaid buy-in could be a relatively frictionless route to universal coverage. But the current individual market stands in the way.

* COBRA, the Consolidated Omnibus Budget Reconciliation Act of 1985, provides that those who are laid off from or leave a job providing insurance coverage can continue in that plan for up to 18 months by picking up the full cost (though some employers continue to subsidize the cost for a period). Employers with fewer than 20 employees are exempt.

** An exception is in the 15 states that have not enacted the ACA Medicaid expansion. In those states, adults with incomes below the Federal Poverty Level are usually eligible for no help at all, as marketplace subsidy eligibility begins at 100% of the Federal Poverty Level. In those states, which include Florida and Texas, the extra unemployment benefit will push hundreds of thousands over the 100% FPL threshold, rendering them eligible for marketplace coverage on favorable terms.

1 comment:

  1. Did the House bill in May actually do a cost estimate on paying all COBRA premiums for laid off individuals?

    If 20 million laid-off persons get a subsidy of $1000 a month, that is $20 billion a month. Will this go for 18 months?

    I am not opposed to this, but I suspect that this cost would never survive the legislative sausage making in a real bill.

    Also, employers would lose on this deal. COBRA morbidity is almost sure to be worse than the health costs for active workers.