This week Democratic Senators Michael Bennet (CO) and Tim Kaine (VA) introduced an updated version of their Medicare-X Choice Act, first introduced in 2017 and again in 2019 (summary here, bill here). The bill would introduce a strong public option into the ACA marketplace and small group markets, paying Medicare rates to providers in most markets, though up to 150% Medicare in rural markets. It would also improve subsidies at every income level on a schedule that's become the Democratic legislative default -- e.g., in the Coronavirus relief legislation. Enrollees would pay the following percentages of income for a benchmark silver plan:
Compared to the healthcare reform plan Joe Biden introduced as a candidate in 2020, the bill has two major limitations. First, it does not offer subsidy eligibility to people who have access to other "affordable" insurance, including an offer of insurance from an employer with a premium below 9.5% of income. (The bill does fix the family glitch, offering subsidy eligibility to employees with families if the employer's family plan costs more than 9.5% of income.) It is not "Medicare for all who want it," notwithstanding presidential candidate Bennet's past claims to the contrary.
Second, the bill does not reduce out-of-pocket costs in marketplace plans, leaving in place the current metal levels with their current fixed actuarial values, and the silver-level benchmark against which subsidies are set (the second cheapest silver plan in each rating area). That means out-of-pocket costs remain high at incomes over 200% of the Federal Poverty Level (FPL). And while Cost Sharing Reduction (CSR) strongly reduces out-of-pocket costs in silver plans at incomes up to the 200% FPL threshold, survey and takeup data indicate that even those comparatively low costs are too high for many prospective low income enrollees. Deductibles average about $175 at incomes up to 150% FPL and about $800 at 150-200% FPL. and annual out-of-pocket maximums top out at $2,850 (averaging about $1,200 at incomes below 150% FPL).
Paying Medicare rates to providers -- really?
The public option (Medicare-X) in the bill is a strong one, paying Medicare rates to providers in most areas and requiring providers that accept Medicare or Medicaid to accept Medicare-X. That promise of an all-but-unlimited choice of providers could transform the ACA marketplace and small group coverage, as the relentless trend has been toward narrow networks.
In rural areas, however, payment rates can be as high as 150% of Medicare rates. Since the public option is to be phased in slowly, launching in 2022 only in areas with just one insurer or with a lack of competition among providers (and reaching all markets by 2025), enactment would likely to begin with provider payment rates well above Medicare rates.
Keeping in mind the legislative experience of passing a public option in Washington state, where legislators began with a bill establishing a public option paying Medicare rates but enacted one setting payment rates at 160% FPL or higher, the prospect of a national public option paying Medicare rates in all but rural areas should be taken with a grain of salt.
Healthcare providers will concentrate all their lobbying firepower against any effort to do so. The American Hospital Association spent good money on a study claiming that the 2019 Medicare-X bill would do grave harm to hospital finances. Look for an update alleging even graver harm from the 2021 version, which boosts subsidies far beyond the level stipulated in the 2019 bill.
Pulling two ways on affordability
The new Medicare-X bill to some degree works at cross-purposes with itself. To the extent the public option reduces premiums (by paying Medicare rates to providers) it reduces subsidies and so compresses premium "spreads" between the benchmark and cheaper plans (that is, bronze plans and the one silver plan cheaper than the benchmark). The compressed spread reduces discounts available for those plans.
The bill also allocates $10 billion a year for three years to a federal reinsurance program, reimbursing insurers for much of the cost of the highest-cost patients. Reinsurance would further reduce premiums, spreads and discounts. In a world with no income cap on subsidies, reinsurance makes no sense: it potentially benefits only the small subset of enrollees who pay full price, either because they have access to employer-sponsored insurance or because an unsubsidized plan costs less than the percentage of their income deemed affordable. (While reduced premiums might benefit the small group market, the bill stipulates that reinsurance is for the individual market.) While reinsurance reduces federal spending on premium subsidies, it does so by subsidizing coverage by other means.
The compression of spreads (and resulting shrinking of discounts) matters less than in past versions of the bill, because benchmark coverage is much more affordable in this iteration. But as noted above, out-of-pocket costs in benchmark coverage remains quite high at incomes over 200% FPL. In 2021, silver plan deductibles average about $3,400 at incomes in the 200-250% FPL range (where weak CSR attaches) and about $4,800 at incomes over 250% FPL. The average out-of-pocket maximum for a silver plan without CSR was about $7700 in 2020. And since out-of-pocket maximums in silver plans differ little from those of bronze plans, bronze plans often make better financial sense both for enrollees who know they'll need a lot of care and for those who are relatively affluent and healthy. For enrollees paying say 4.0-8.5% of income for a benchmark silver plan, the availability of cheaper plans still matters.
Complementary administrative action would help
As I've noted recently, the administration can reduce out-of-pocket costs without legislation, by at least two methods.
First, they can change the formula used to calculate actuarial value (AV), which is fixed at every metal level (though varying by income for silver plans). AV purports to represent the percentage of the average enrollee's costs paid by the plan (60% for bronze, 70% for silver without CSR, 80% for gold, etc.). But the highest-cost enrollees skew the average, as Bill Gates walking into a bar skews the average income of those present. Thus a bronze plan purporting to cover 60% of costs may have a deductible of $8,000 and coinsurance of 50% for most services. By simply cutting those with the highest risk scores (i.e., anticipated medical costs, based on chronic condition or risk) out of the formula, CMS can raise effective AV at each metal level.
Second, CMS can ensure that every enrollee have access to a plan with an actuarial value of at least 80% (including under the adjusted scale described above) by requiring full "silver loading" -- that is, by requiring that plans be priced in strict proportion to their real actuarial value. As I wrote recently:
Silver loading is a premium pricing practice that began in 2018 in response to Trump's abrupt cutoff in October 2017 of direct reimbursement to insurers for the Cost Sharing Reduction (CSR) subsidies they are obligated by statute to provide to low income enrollees who select silver plans. State regulators responded by permitting insurers to price CSR into silver plans only, 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. So far, though, these discounts have been haphazard and partial; on balance, actuaries tell us, silver is underpriced relative to the average actuarial value obtained by enrollees (which various according to the level of CSR they obtain, if any)...
...since each insurer's silver plan enrollees collectively obtain higher actuarial value for their coverage than gold plan enrollees (thanks to Cost Sharing Reduction, priced directly into premiums since 2018), the ACA statutorily obligates insurers to price gold below silver, and they usually don't. Bronze is also overpriced relative to silver. The problem is best addressed on a national level, since the risk adjustment formula promulgated by CMS and used in all states currently favors silver plans.
The argument is that CMS should mandate full silver loading so that every prospective marketplace enrollee has access to a gold plan for less than the cost of benchmark silver, and higher-income enrollees will have access to more strongly discounted bronze coverage.
The likely effects of maximal silver loading in tandem with the compressed spreads that might be generated by a public option are a little dizzying. For starters, under the proposed subsidy schedule, virtually no enrollee with an income below 200% FPL should choose any option but silver, and no enrollee over that threshold should choose silver. That means that silver AV should be assessed at about 90% -- well above that of gold. At the same time, the downward pressure on premiums imposed by a public option may compress the spread between silver and gold, reducing potential gold discounts.
Other bill provisions
Almost by the way, the Medicare-X bill empowers HHS to negotiate drug prices -- in the new public option and in Medicare Part D. That of course would be a sea change in itself, addressed in more detail by the comprehensive prescription drug pricing bill, H.R. 3, passed by the House and left to die in the Senate in 2019.
The bill devotes a fair amount of verbiage to empowering HHS to deploy in Medicare-X various payment experiments, many of them already afoot in existing Medicare, including telehealth and integration of social services. It also establishes a grant program for experimentation with payment methods, though it doesn't appropriate money for that program.
Is it "Medicare"?
Medicare is a great brand in the US.: it connotes comprehensive, relatively trouble-free and affordable coverage. That reputation is testimony to the ills imposed by commercial insurance and is in large part undeserved, or rather contingent on having good supplemental coverage or high-quality Medicare Advantage coverage. As a stand-alone, traditional Medicare is riddled with coverage gaps, most notably the lack of an annual out-of-pocket maximum. Medicare Advantage plans to varying degrees narrow the choice of providers, throw up prior authorization barriers, and have substantial out-of-pocket costs, though they do provide an out-of-pocket maximum (up to $7,550 in 2021).
How would Medicare-X compare, if it were to be enacted substantially as written? For starters, it would provide the near-unlimited choice of providers offered by traditional Medicare -- a major component of Medicare's good reputation. For enrollees with incomes up to 200% FPL, the silver-level Medicare-X would be cheaper and offer more comprehensive coverage than traditional Medicare, with a relatively low cap on out-of-pocket spending.
At higher incomes, the silver Medicare-X benchmark would impose considerably higher out-of-pocket costs (for those not exceeding the out-of-pocket maximum) than traditional Medicare. Silver marketplace plans without CSR have an actuarial value of 70%, compared to about 84% for Medicare (weak CSR raises the silver AV to 73% for enrollees in the 200-250% FPL income bracket). That AV deficit could be mitigated or erased by the administrative action outlined above -- though admittedly, the chances that Medicare-X will become law and that HHS will move on two fronts to increase AV are vanishingly small. As for premiums, under the subsidy schedule in the current bill, the cost of benchmark silver coverage would exceed the cost of Medicare Parts B and D premiums at an income of about 300% FPL ($38,280/year for an individual), or a bit below.
Medicare-X is not merely notional legislation. If the Democratic Congress does pass the marketplace subsidy enhancements introduced on a temporary basis in the Covid relief legislation, Medicare-X provides a path for injecting a public option while making those subsidy boosts permanent. By keeping the subsidy door closed to those with access to employer-sponsored insurance, it may appear relatively moderate, though if it advances at all it's sure to draw fire from healthcare providers and insurers. If the plan were to take hold, that door to those with access to employer insurance would likely be opened sooner or later -- as healthcare industry groups will certainly warn (loudly). If something like this public option becomes law while paying anything close to Medicare rates, that will be a minor political miracle. Don't count the x-factor out.
Thanks for another thoughtful article.
ReplyDeleteThe Medicare X plan would apparently extend subsidies to all incomes, and would also end the family glitch. These are no small achievements.
I appreciate your close analysis of CSR spreads and loading, but frankly I cannot follow it all (and I am pretty knowledgeable on this stuff.)
We have a crazy-making process, as follows:
1. Carriers want to hold down premiums.
2. The surest way to do this is to reduce the volume of claims.
3. Therefore carriers turn first to higher deductibles and copayments.
4. But this makes a typical policy seem worthless to a person with low income and no assets.
5. So someone in about 2009 invented the CSR program, and also designed a little side payment to compensate insurers.
6. The Trump admin blew up the side payment, and CSR was priced into silver premiums.
The better solution is this:
Offer a public option plan with lower deductibles. Provide public funding to keep premiums modest.
Of course this would count as on-budget spending, which Washington always tries to avoid.