Will 60-64 year-olds have a choice between Medicare and Obamacare? What will that look like?

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I turned 62 recently. Yesterday, for the first time, I took seriously the possibility that my wife and I might be enrolled in Medicare before we turn 65.

According to the Wall Street Journal's Stephanie Amour and Kristina Peterson, the Democrats' next healthcare initiative, envisioned for spring 2022, is likely to contain

measures to reduce drug prices and expand health coverage, lawmakers said. Proposals to expand Medicare eligibility from age 65 to 60 and to enable the federal government to negotiate drug prices in the health program for seniors—both of which President Biden supported on the campaign trail—are also likely to be included.

I can think of a lot of reasons these measures -- paired so that the prescription drug savings will finance the expanded eligibility -- may not happen.  But the odds that they will be enacted are not negligible. Democrats' success holding together to pass the $1.9 trillion Covid relief package have made a lot of bold initiatives seem possible.

If Democrats do manage to drop the Medicare eligibility age, they are also likely to make permanent the major increases to premium subsidies in the ACA marketplace enacted through 2022 in the Covid relief bill, the American Rescue Plan Act. And the two initiatives could overlap -- or clash -- to some degree.

The possibility of passing all of the above raises questions: will Medicare be offered to 60-65 year-olds on the same terms as Medicare for people over age 65?  Will enrollment delayed past age 60 be penalized on the same terms as enrollment delayed past age 65 at present? If enrollment at 60-65 is optional, will those who lack access to employer-sponsored insurance also be eligible for subsidized ACA marketplace coverage? -- will they have a choice between the two programs?

If Medicare is indeed subsidized as heavily at ages 60-64 as at age 65 and over, and if enrollment is optional, and if the ARPA subsidy schedule for the ACA marketplace (or something close to it) becomes permanent, some 60-65 year-olds will have a tough choice to make between Medicare and marketplace coverage. 

Broadly speaking, those with incomes up to 200% of the Federal Poverty Level (FPL) will likely find lower costs in the marketplace -- if they're not dually eligible for Medicare and Medicaid. Those with incomes over 400% FPL will likely favor Medicare.  In between is a gray area, with tradeoffs that are charted and discussed below.

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For 95% of the population (individuals with income up to $88,000, couples up to ($176,000), the premium for Medicare Part B (physician and outpatient services) is $148.50 per month. Part D (prescription drug) premiums average $41 per month (when they're not $0, rolled into Medicare Advantage plans, per below). Citizens and legally present noncitizens with 10 years of taxed work history pay no premium for Part A, hospital services. 

Private Medicare Advantage plans almost universally include Part D coverage and average $21/month over and above the Part B premium, or $170/month in toto. A bit over half of MA plans charge no premium above the Part B premium, and 60% of enrollees are in zero-premium plans. I assume that cheaper plans tend to offer narrower provider networks, but I also suspect that marketplace plan networks are narrower still on average.

Traditional (fee-for-service) Medicare offers a virtually unlimited choice of providers but does not cap annual out-of-pocket (OOP) costs. Because Medicare Advantage (MA) plans include an annual OOP cap -- excluding drug costs, which are not capped in Medicare -- and also require enrollees to seek care within a limited provider network, they offer the clearest comparison with marketplace plans. 

The highest allowable OOP max for in-network care in MA plans in 2021 is $7550; the average in-network OOP max in 2019 was $5,059 (and so perhaps about 10% higher now).  In marketplace plans, the highest allowable OOP max in 2021 is $8,550; the average for a silver plan with no Cost Sharing Reduction (CSR) is $7,335.  For enrollees with incomes low enough to qualify for CSR (up to 250% FPL), marketplace plans are considerably cheaper than MA plans would be -- and at incomes up to 200% FPL, their cost-sharing is lower than in MA plans as well. 

The difference in OOP maxes reflects the fact that MA plans have a higher actuarial value (about 84%) than silver marketplace plans without CSR (70%) or with the weak CSR available at 200-250% FPL (73%). Actuarial value refers to the percentage of the average user's annual costs the plan is designed to pay (though a small percentage of high-cost enrollees skews this average). At incomes up to 200% FPL, silver plans, enhanced by CSR, have lower OOP than MA plans on average (AV 94% to 150% FPL, 87% at 150-200% FPL). [Update: Charles Gaba points out that Democrats are also likely to increase benchmark actuarial value at every income level, e.g., via Senator Jeanne Shaheen's bill, S499.]

Through 2022, the ARPA reduced premiums for a benchmark silver plan as follows:

Importantly, that percentage of income applies to the whole household, whereas Medicare premiums are per-person. That makes marketplace a better deal for couples to a higher point on the FPL ladder than for singles -- or for couples in which one person qualifies for Medicare and the other doesn't.

Before proceeding to a direct comparison of MA and marketplace premiums, one more factor must be considered. Since 2018, in a process known as silver loading,* marketplace plans have been pricing the value of CSR into silver plans only, since CSR is available only with silver plans (see below for a brief history). That has created haphazard and uneven discounts in bronze and gold plans, such that the premium for the average lowest-cost gold plan in the ACA's myriad markets is only about 7% higher than the average benchmark premium. I believe that average is somewhat skewed by outliers; gold plans are not usually that cheap, though in a smattering of markets, they're priced below benchmark silver. If silver loading were done properly and plans were priced in proportion to AV as required by statute, gold plans would always be cheaper than silver. The Biden administration can make that happen, but it's not the case now. That said, average premiums for lowest-cost gold plans, which are closer in value to MA plans than are benchmark silver plans at incomes over 200% FPL, are included in the chart below.

Benchmark and lowest-cost gold monthly premiums under the American Rescue Plan Act vs. Current monthly Medicare Advantage premiums
Marketplace premium spread is for a 60 year-old

Individual

Income percentage of  FPL	Annual income 2021	Marketplace benchmark premium	Avg. lowest-cost gold premium	Avg. MA +Part B premium	Zero-premium MA
200	$25,520	$  43	N/A	$170	$149
250	$31,900	$106	$166	$170	$149
300	$38,280	$191	$251	$170	$149
350	$44,660	$270	$330	$170	$149
400	$51,040	$362	$422	$170	$149

 Couple filing jointly (premiums for two)

Income percentage of  FPL	Annual income 2021	Marketplace benchmark premium	Avg. lowest-cost gold premium	Avg. MA +Part B premiums	Zero-premium MA
200	$34,480	$  57	N/A	$340	$297
250	$43,100	$144	$264	$340	$297
300	$51,720	$258	$378	$340	$297
350	$60,340	$365	$485	$340	$297
400	$68,960	$488	$548	$340	$297

 A few more factors to consider in this comparison:

• Medicare Advantage plans include out-of-pocket caps on coverage obtained out of network. While these caps are higher than for in-network care (up to $11,300 in 2021 for out-of-network and in-network care combined) many narrow-network  plans in the ACA marketplace offer no out-of-network coverage at all. 
  
  
• Conversely, OOP caps in marketplace plans apply to drug costs, whereas Medicare Part D plans (including those incorporated into Medicare Advantage plans) do not cap costs. Once an MA plan enrollee's total drug costs exceed $6,550 (after paying a deductible and 25% of costs to that level), catastrophic coverage includes a 5% copayment from the enrollee. For specialty drugs in the hundreds of thousands of dollars, this cost is...not trivial.
  
  
• This marketplace-vs. Medicare Advantage comparison spotlights the middle of the income spectrum, very broadly defined. Those at the lower end of the income spectrum - -generally below 100% FPL, or in some states and cases a bit above -- may have dual Medicaid/Medicare eligibility, or be eligible for Medicare Savings Plans that reduce or eliminate enrollee costs. Almost 20% of current Medicaid enrollees are dual eligibles.
   
• On the upper end of the spectrum, those who can afford Medigap plans, or whose employer offers them, hold the keys to the U.S. healthcare kingdom: virtually unlimited choice of provider and minimal out-of-pockets costs -- with the notable exception of the prescription drug Achilles Heel. Medigap plans combine sit on top of traditional Medicare -- they are not available in combo with Medicare Advantage plans. They usually cost $100-200 per month on top of Medicare Parts B&D premiums, for a total of about $300-400/month per person. 

The ACA marketplace has often been criticized for undue complexity in benefit structure and the application process. The dizzying complexity of Medicare is less often recognized, perhaps because until now Medicare has been more generously subsidized than the marketplace -- but honestly, it's reached insane proportions. The average new enrollee has 33 Medicare Advantage plans to choose from. For low income enrollees, application for Medicaid and MSPs includes asset as well as income tests and can involve onerous administrative burdens. As for Medigap, there are no less than 10 plan types, though two are no longer available to new enrollees, since covering the Part B deductible was recently banned. While Medigap benefits are standardized by plan type, some plans' premiums rise more steeply with age than others.

Layering a marketplace vs. Medicare choice into the menu for 60-64 year-old people may benefit many. But many may make suboptimal choices. As Democrats twist the healthcare Rubik's Cube once more, they should keep an eye on complexity.

Update, 4/1/21: By the time I'd crawled my way to the end of this post, I'd forgotten my intended conclusion: the comparison highlights the illogic of having two overlapping systems. The chief difference between Medicare and the marketplace is in the rates plans pay to providers, and in that regard the marketplace wastes national resources by paying commercial rates. The Medicare benefit should be improved and streamlined -- and available on an affordable basis to anyone, including those with access to employer-sponsored insurance.  

Update, 9/6/21: Originally I had the average premium spread between the benchmark and lowest cost gold plan wrong -- corrected above.

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* 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 CSR. 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.

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