Fixing the ACA’s Medicare Glitch

By Louise Norris and Andrew Sprung

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It's my pleasure to team up in this post with Louise Norris, a health insurance broker and ACA chronicler extraordinaire at healthinsurance.org and verywell.com. At those two sites, Louise has effectively created a constantly updated encyclopedia of the ACA, covering a host of enrollment situations, regulations, marketplace features, and histories of each state marketplace. She has done similar work about Medicare at Medicareresources.org.

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For most Americans, enrollment in Medicare is cause for celebration. At last: affordable, reliable insurance you can’t lose. Medicare enrollment can entail some complex determinations (do I qualify for any Medicare Savings Programs?) and decisions (Medigap or Medicare Advantage?) For many seniors, too, the burden of premiums and out-of-pocket expenses is heavy. Still, by American standards, Medicare is reliable and affordable.

For “near-elderly” couples (under age 65)  who are insured through the Health Insurance Marketplace established by the Affordable Care Act, however, the transition of the elder spouse into Medicare can bring sticker shock and extra expense. That’s because ACA premium subsidies are designed so that enrollees pay a fixed percentage of household income for the benchmark (second cheapest) silver plan in their area – and they pay the same percentage (reduced through 2022 by the American Rescue Plan enacted in March 2021) regardless of how many people need insurance. 

A couple that was paying 8% in premiums for a benchmark silver plan to cover both of them will still pay 8% of income when only one of them is covered in the marketplace. When one of them transitions to Medicare, they will pay the marketplace premium plus the Medicare premium. In the illustration below, they will pay somewhere between 11% and 14% of income in premiums to cover them both, depending on whether the Medicare enrollee opts to buy a Medigap policy.

Privatizing Medicare: Paul Ryan's soul goes marching on

ICYM the prior post on Trump's executive order aiming to advance the privatization of Medicare on multiple fronts, I've had the chance to refine it twice, on BlueWaveNJ and at medicareresources.org (hence the blogging drought here).

The short version (from the medicareresources.org post):

Issued on October 3, Trump’s order instructs the Secretary of Health and Human Services (HHS) to take steps aiming to

• “Voucherize” Medicare in the manner proposed by Paul Ryan – that is, let private Medicare Advantage plans set prices for traditional Medicare, rather than vice versa as at present.

• Create a private insurance market outside of Medicare for wealthy seniors that would likely lure doctors away from participation in Medicare.

• Subject Medicare enrollees to the joys of “balance billing” – getting billed by providers for amount in excess of their normal share of the Medicare bill.

What's so great about Medicare?

Kaiser Family Foundation polling indicates that when a majority of Americans say they're in favor of Medicare for all, most are thinking of the program as it currently exists, not as Bernie Sanders re-imagines it.*

Which raises the question: Why is Medicare's brand so strong?  I've explored the question over at medicareresources.org, companion site to healthinsurance.org.

Personally I would rate Medicare somewhere along the lines of a review advertised by a Cleveland restaurant long ago: Not great, but more than adequate when you consider the alternatives. For all its gaps and flaws, Americans exhale when they hit age 65. Hope you'll click through for a bit more detail.
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* Most apparently are also thinking that everyone should be able to opt in, not that everyone should be auto-enrolled with no alternatives.

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How the ACA marketplace falls short of Medicare

When Americans turn 65, they're faced with a huge variety in Medicare offerings. In addition to or in place of the three parts of traditional, fee-for-service (FFS) Medicare, two of which require enrollee action to enroll, a typical enrollee may choose from among 10 distinct types of Medigap plan, each with a mandatory benefit structure, or from an average of 24 Medicare Advantage offerings that incorporate, with some tradeoffs, the benefits of  Medicare Parts A, B and D (hospital, medical  and prescription drug coverage). Low income enrollees may need often hard-to-find assistance, and a wheelbarrow full of financial documents, to access supplementary Medicaid or Medicare Savings Program (MSP) benefits that pick up all, most or some of their out-of-pocket costs.

Notwithstanding this Byzantine array of programs and choices, the generous national subsidization and fixed benefit structure of  FFM Medicare provide a stable backbone to the program. The bottom line is that 95% of the over-65 population has access to health insurance with an actuarial value a bit north of  80%  for something under $200 per month, with options that take AV up to 100% for up to about $400 per month. Step-ups for the wealthiest 5% of the eligible population are proportionate and affordable.  Roughly a sixth of some 45 million Medicare enrollees over age 65 are low income "dual eligibles" for whom Medicaid picks up much or all of out-of-pocket costs.

Think ACA enrollment is complicated? Try Medicare

One of the early and persistent raps against the ACA is that the benefit structure and application process are too complex. There's a lot of questions to answer. It takes a half hour to an hour -- if you're not called on to provide extra verification for your identity or immigration status or income. There are benefit cliffs -- between Medicaid and the marketplace; between marketplace enrollees who qualify for strong Cost Sharing Reduction and those who don't; and, most precipitous (for older enrollees), between those who qualify for premium subsidies and those who don't. As for plan offerings, in some markets a dominant insurer will throw up a half-dozen minutely differentiated plans, sowing confusion.

All this is true. But I'd like to take a first pass here at a myth that I'd like to explore more fully later: that by comparison, Medicare is a blessed zone of simplicity, equity and benefit adequacy.

What I learned at Health Action 2018

Below, a few notes from Health Action 2018, Families USA's annual conference -- things I learned, or learned in more detail, or was forcefully reminded of. [Update: my report about what the conference suggested about where Democrats may be headed on the healthcare front is up at Crooked Media.]

         Re Medicare:

• Many low income sixtysomethings face a "Medicare cliff" at age 65. They've had all their medical expenses paid by Medicaid;  now, suddenly, they're faced with Medicare's 20% copays, drug costs, etc. (Leslie Fried, National Council on Aging)


• Medicare Savings Programs (MSPs), a variety of programs through which low-income Medicare enrollees' premiums or out-of--pocket costs are picked up by Medicaid, are all underutilized. Only about half of those eligible are enrolled. Funding for State Health Insurance Assistance Programs (SHIP), which provide enrollment assistance to seniors, is grossly inadequate and at risk. Susan Collins has stood up for SHIP. (Leslie Fried).  I plan to learn more/post more about the Medicaid-->Medicare cliff.

Not throwing away our Schatz: What kind of public option in the ACA marketplace?

Senator Brian Schatz's proposal to allow any American to buy into Medicaid is frustratingly vague: we don't know the plan design and how it would be integrated into the ACA marketplace, as David Anderson and Loren Adler point out in this Vox roundup of expert assessment.

Two disclosed details are salient, though -- and to me, point toward two essential features of an ACA redesign from the progressive side. The first is the provider payment rate: bumped up to Medicare. The second is a cap on premiums as a percentage of income -- 9.5% -- for any buyer. (Larry Levitt mentions that feature in the Vox roundup; it's apparently not yet part of any published plan outline.)

Those features bring me back to the compromise package floated by the Urban Institute's Linda Blumberg and John Holahan back in January (which in turn built on their 2015 ACA enrichment plan, with concessions to Republicans salted in). That plan included an 8.5% of income cap on premiums for any buyer -- and a cap on payment rates paid to providers (in concert with reinsurance):

Healthcare spending cuts, Democrat style. Healthcare spending cuts, Republican style

The cut to federal Medicaid spending that CBO estimates would result from the BCRA -- $750 billion over ten years -- superficially recalls ACA cuts to Medicare spending, estimated by CBO in 2010 at $455 billion. As Democrats raise the alarm about deep damage to Medicaid, so Republicans screamed for years that Democrats were cutting Medicare. But of course there are fundamental differences:

• Democrats cut the growth in Medicare spending and spent the savings to extend health insurance to the uninsured. Republicans want to cut Medicaid to fund tax cuts for the wealthy and for healthcare companies.


• The ACA specifies that the reductions it mandates in spending growth are not to reduce services provided to Medicare beneficiaries, but only payments to providers. The "Medicare guarantee" that has been stable in traditional (fee-for-service) Medicare for decades -- premium-free hospital coverage, 75% premium subsidy for physician services, actuarial value a bit over 80% for these services, and (since 2006), somewhat weaker drug coverage -- remained intact, and in fact strengthened on the drug front. 

Tom Price will probably cut your health insurance subsidy in half

Last week, I noted that the federal government pays a bit more than two thirds of total medical costs for the average traditional Medicare enrollee. That is, the government pays about 85% of the premium(s) for insurance that covers a bit more than 80% of the average user's annual medical costs (that latter percentage is known as a health plan's actuarial value). Subsidies for those who chose Medicare Advantage plans are comparable.

In a followup post, applying the same calculation to subsidized enrollees in the ACA marketplace and prospective enrollees in HHS Secretary nominee Tom Price's ACA repeal-and-replace plan, I came up with the following total subsidy values:

Traditional Medicare:  85% of premium paid for AV 81% coverage = 69% of costs

Subsidized ACA marketplace: 73% of premium paid for AV 81% = 59% of costs (highly variable)

Tom Price ACA replacement: 59% of premium paid for AV 60% coverage = 35% of costs

What exactly is the Medicare guarantee?

As Paul Ryan revs up Republican engines for Medicare privatization, Nancy Pelosi vows to Greg Sargent that Democrats will fight it to the death:

Pelosi adamantly stated that Democrats would not give any ground on the core ideological dispute here, which is over whether to maintain a government coverage guarantee. “We are not going to a casino — this is a guarantee,” Pelosi said. “This is a value system for us, and we will fight for it. Is it a guarantee, or not?”

This raises a question: what precisely is the Medicare guarantee?

At present, there's a pretty specific answer: for 95% of seniors, the federal government will pay about 85% of the premiums for insurance that covers a bit more than 80% of the average user's medical costs. That's what traditional Medicare does right now, via Parts A, B and D, for those whose incomes are below $85,000 for a single person or $170,000 for a couple.

Put another way, the federal government pays a bit more than two thirds of the average senior's total medical costs. Low income beneficiaries have all or part of their premiums and out-of-pocket costs paid by Medicaid, though a variety of programs. High income seniors pay higher shares of their premiums, with the percentage stepped up through several income brackets.

What Ryan wants to do to Medicare

Last week, Paul Ryan indicated that he wants to move fast not only to repeal the ACA but to privatize Medicare to a premium support structure, as he's been proposing since 2011.

Of course, Medicare is already almost 1/3 privatized, in that 31% of enrollees have chosen Medicare Advantage plans rather than traditional fee-for-service Medicare. And MA's market share is growing year by year.  So why is Ryan so compelled to accelerate the process?

I have a post up at medicareresources.org, sister publication to healthinsurance.org, that aims to answer that question. Democrats generally assume that Ryan wants to shift the costs of Medicare away from the federal government and onto seniors, and I think that's right, but he has not explicitly called for doing so since 2011. His plan is studiously vague, and therefore hard to pin down. But what it would do, I think, along with de-emphasizing traditional Medicare by making it one choice among many on an exchange, is cut the cord that currently binds the rates that MA plans pay to providers to the rates paid by traditional Medicare.  That would accelerate cost growth in MA, which would in turn probably trigger a shift of costs to seniors.

I hope you'll read the post.

"Redemption" threatens the ACA marketplace (and Medicaid and Medicare)

In the post-election nightmare we're now living in, existing Republican blueprints to "repeal and replace" the ACA are newly relevant. Perhaps the most comprehensive plan was published by the American Enterprise Institute in December 2015 and prepared by an all-star cast of conservative healthcare wonks including James Capretta, Yuval Levin, Ramesh Ponnuru  and Avik Roy.

Reading this plan today, I was struck with deja vu stemming from my slow read, nearly complete,  of Eric Foner's Reconstruction: America's Unfinished Revolution, an epic chronicle of the failure of post-Civil War Republicans' efforts to endow the South's freedmen (and pre-war free blacks) with a modicum of political representation and civil rights. Over time, as Republican willingness to enforce those rights militarily waned, the resurgent white oligarchy used terror and violence to disenfranchise African Americans and regain total political control. The toolbox for maintaining that control over decades sounds very contemporary:

Fiscal retrenchment went hand in hand with a retreat from the idea of an activist state meeting broad social responsibilities. “Spend nothing unless absolutely necessary,” Gov. George F. Drew advised the Florida legislature in 1877, and lawmakers took his advice to heart, abolishing the penitentiary, thus saving $ 25,000, and abandoning a nearly completed Agricultural College, leaving the state without any institution of higher learning, public or private. Alabama’s Redeemers closed public hospitals at Montgomery and Talladega and Louisiana’s were “so economical that … state services to the people almost disappeared.” Similar reductions affected provisions for the insane and blind as well as appropriations for Southern paupers, despite the lingering effects of the economic  depression. South Carolina Democrats tightened collections from blacks owing mortgages to the state land commission, producing a “pell-mell rout of Negro settlers.” Public education— described as a “luxury” by one Redeemer governor— was especially hard hit, as some states all but dismantled the education systems established during Reconstruction. Texas began charging fees in its schools, while Mississippi and Alabama abolished statewide school taxes, placing the entire burden of funding on local communities. Louisiana spent so little on education that it became the only state in the Union in which the percentage of native whites unable to read or write actually rose between 1880 and 1900. School enrollment in Arkansas did not regain Reconstruction levels until the 1890s. Blacks suffered the most from educational retrenchment, for the gap between expenditures for black and white pupils steadily widened (Kindle locations 11077-11089).

NEJM Study: Vertical consolidation may negate benefits of health care coordination

A study* of the early performance of Accountable Care Organizations (ACOs) formed under the ACA suggests that, in funding such programs, the ACA creators may have sawed at the branch they were sitting on.

The analysis of of ACOs in the Medicare Shared Savings Program (MSSP), by a team led by Harvard's J. Michael McWilliams*, looked at total Medicare Parts A and B spending and spending on patients with select specific conditions in participating ACOs that entered the program in 2012 and 2013. In the MSSP, the largestof the ACO programs, organizations take on no downside risk -- they stand only to gain if they keep spending below targets.

The study found modest reductions in spending compared to control groups by the 2012 cohort, and negligible reductions in the 2013 cohort. Most of the improvement was in two subgroups: those whose spending was higher than the regional average prior to the program launch, and those that were composed of independent physician groups rather than those owned by hospitals. The second finding throws up a red flag with respect to current trends:

we estimated substantially greater savings for independent primary care groups than for groups integrated with hospitals when comparing spending changes in ACOs with local concurrent changes. There are both theoretical considerations and previous observational studies that would support the pattern of savings that we observed. In particular, independent physician groups have stronger incentives to lower inpatient and hospital outpatient spending than groups integrated with hospitals because their shared-savings bonuses are not offset by forgone profits from reductions in hospital care. Our findings suggest that financial integration between physicians and hospitals, which may increase commercial health care prices,is not necessary for ACO success. Early signals from the MSSP, however, may not predict the long-term efficiencies from various organizational structures under new payment models

Narrow networks: a crooked path to affordable healthcare?

Richard Mayhew has a post suggesting that even a strong public option in the ACA exchanges would generate only "marginal pressure to reduce prices." In a competitive market, it might not undersell all commercial plans, and in a non-competitive market it might be able to field only a very narrow network -- most providers wouldn't opt in. Be that as it may, one claim brought me up short:

Mayhew Insurance is in a competitive market region for the Exchanges.  The lowest priced Silver plans offered by all of the insurers in this region are narrow network HMOs where the providers get paid Medicare rates plus 5% to Medicare plus 10%.  The public option would be just another plan that is in the cluster for the 2nd Silver subsidy point.

In other words, there are insurers on the exchanges who are paying providers no more than a strong public option would pay. In fact it's been suggested to me that the lowest-priced insurers in the marketplace probably pay something closer to Medicaid rates than to Medicare.

This is one of those scratchpad posts, put up as I explore further. If you see any faulty assumptions, please let me know.

Why does the Census show such small gains among the poor in government-provided health insurance?

If I may reiterate: it seems quite strange to me that the Census health insurance surveys show a net gain for 2014 of just 1.3 million people with incomes under 138% of the Federal Poverty Level enrolled in government insurance plans -- whereas according to HHS, Medicaid enrollment increased by over 9 million in 2014, thanks to the ACA expansion. 138% FPL is the eligibility threshold for Medicaid under the ACA expansion.

The second half of this post provides more detail. According to the Census surveys, those with incomes under 138% FPL showed much stronger gains in private insurance than in public, while those in higher income brackets showed stronger gains in public insurance than in private. That's odd.

The difference may in large part be due to differences in how households are defined: the ACA marketplaces determine eligibility according to who is included in a household tax filing, while the Census surveys (CPS and ACS) consider who lives under one roof. Many other factors are in play, including a modest acceleration in Medicare eligibility and higher income thresholds for children in CHIP than for adults in Medicaid. But none appear on the face of things (as far as I can see) to explain the very low recorded gains in government insurance among adults under 138% FPL (and even more strikingly, under 100% FPL).

Again, there's more detail below the second subhead here (along with some updates added over the weekend). This post is simply to unbury the lead a bit, as I look into the state data.

The bipartisan consensus on healthcare cost control

It would be inaccurate to say that there are two main methods of controlling healthcare costs. But it's fair, I think, to say that there are two poles, with an important if unproven class of measures between them.

One pole is government control over the price of medical services, procedures and products, including drugs. The means vary widely, from direct government payment of providers (the U.K.) to regional government approval of rates negotiated by all insurers (Switzerland, for hospitals). Government rate-setting is employed by every wealthy country except the United States, which is also to say every country that provides universal health insurance to its citizens. Not coincidentally, the U.S. spends two-and-a-half times the OECD per capita healthcare spending average and almost twice as much as a percentage of GDP (as of 2011).

The other pole is to offload an ever-increasing share of the healthcare tab onto consumers, causing them to restrict their healthcare consumption.  The U.S. has de facto taken this route. According to Kaiser Family Foundation research, the percentage of workers who pay an annual deductible of more than $1,000 for a single-person plan provided by the employer rose from 10% in 2006 to 38% in 2013. From 2003 to 2013, while premiums overall rose 80%, the cost of the average worker's share of the premium rose 89%, from $2,412 for a family plan in 2003 to $4,565 in 2013. According to the 2013 PwC Touchstone Survey of major US companies, 44% of employers were considering offering high-deductible health plans as the only benefit option to their employees in 2014; 17% did so in 2013.  Deductibles have also skyrocketed in the individual market, a trend accelerated by the Affordable Care Act. In the ACA exchanges, the average bronze plan's single person deductible was just over $5,000 and the average silver plan's, just under $3,000.

Could a "doc fix" have a bigger impact on U.S. healthcare than the ACA?

Two interrelated features of the U.S. healthcare system are probably the primary causes for the uniquely high cost of healthcare in the U.S.: weak government control over pricing, and the fee-for-service payment model.

These interrelated weaknesses are exacerbated, as a weekend Washington Post exposé showed, in that Medicare pretty much lets doctors determine the rates at which they paid, by leaving it to the AMA to produce estimates of how long each procedure takes. Surprise! The doctors' chief trade group massively pads the estimated times required for most procedures. 

Even if procedure prices were based on accurate time estimates, free-for-service incentivizes providers to perform a high volume of the most expensive procedures. Nonetheless, countries in which the government imposes monopsony price control -- i.e., every other wealthy country in the world -- generally manage to deliver universal healthcare at two thirds to half the cost per capita of healthcare in the U.S.  Government control over pricing, as Ezra Klein recently forced healthcare free market evangelist Avik Roy to admit, is the sine qua non of effective heathcare cost control.  And we in the U.S. don't have it, as a study published in Health Affairs ("It's the Prices, Stupid...", Gerard F. Anderson et al., 2003) explains:

"Government-run healthcare," Singapore style

In his long rhetorical war against the Affordable Care Act, Avik Roy likes to hold up Singapore's healthcare system as a shining counter-example. He quite rightly points out that Singapore spends far less on healthcare than the U.S. (4% of GDP vs. 18% for the U.S.), and with better outcomes. How do they do it? Roy -- while acknowledging one aspect of the government's heavy hand --  credits free-market magic:

The key to the Singapore system is mandatory health savings accounts: again, something that libertarians and many conservatives wouldn't like. Matt Miller of the Center for American Progress describes Singapore as "further to the left and further to the right" than the American system--something that could also be said of Switzerland.

Are "liberals" learning to love the sequester?

A while back, as the sequester took hold and Obama unfurled his budget, Greg Sargent framed up what he presented as a tough choice for Democrats (on the dubious chance that they would have any choice at all): Stand pat with the sequester in place, Medicare and Social Security left essentially untouched, and no new revenues beyond the $600 billion over ten years enacted in January -- or sign on to a grand bargain that would include entitlement cuts proposed in Obama's 2014 budget, e.g.,  chained-CPI and higher Medicare premiums for wealthier seniors, along with more targeted and gradual discretionary spending cuts than those mandated by the sequester, and some new revenue.

As of today, Sargent seems to have made his choice, or assumed a collective one for "liberals":

The Monica Lewinsky scandal may have helped save Social Security in the late 1990s. Now the scandal fever currently gripping Washington — IRS, Benghazi, Associated Press phone records — may save Social Security and Medicare two decades later.

Liberals who are dreading the scandal-mania that is taking hold should note that it contains a potential upside: It could make a Grand Bargain that includes cuts to Medicare and Social Security benefits even less likely than it already is.

Save Social Security? From Obama's chained-CPI proposal, which by slowing cost-of-living increases would reduce payments from the current baseline by about 0.3% per year, with offsets for the very elderly? Save Medicare? From Obama's $400 billion/10 year grab bag of nips and tucks, little different from those proposed in his 2013 budget, the most notable difference being larger (but still quite incremental) premium hikes for wealthy seniors than those proposed in 2013?

Picking at the healthcare Gordian knot

It's no secret that there's a grotesque hierarchy in U.S. healthcare pricing. Medicaid pays the lowest prices, followed by Medicare, then by private insurers.. and then, at the bottom of the totem pole, by uninsured individuals, who, as Steven Brill documented in grotesque detail, may pay three or ten or fifteen times what Medicare pays for a given procedure.

This system is not only grossly unfair, it's the chief reason Americans pay more than twice the OECD average per capita for healthcare than people in other developed countries. Notwithstanding a wide variety of payment systems, countries with universal health insurance -- that is, every other wealthy country in the world -- almost universally empower government to impose uniform pricing. In Japan, for example, where most people get health insurance through private, nonprofit plans provided by their employers (generally with a 30% patient co-pay), the government publishes a uniform price schedule. T.R. Reid, in The Healing of America, describes it:

[the medical price schedule is] published in a thick book--about the size of the Tokyo telephone directory--that anybody can buy. This hefty volume, the Shinryo Tensu Hyakumihyo ("Quick Reference Guide to Medical Treatment Points"), sets forth exactly what a doctor, therapist or hospital will be paid for any treatment or medication. There are tens of thousands of different treatments in the book: "throat swab,", "application of plaster cast, ankle," "sutures, outer arm," "X-ray, simple, neck region, rear," etc., etc. For almost all of these, the price is extremely low...(p. 91).