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Hiding In Plain Sight: Using Medicare To Solve The ‘Public Option’ Conundrum

Barack Obama_addresses_joint_session_of_congress_2-24-09As Senate and House Committee versions of health reform move toward unified legislation and floor votes, the most complex political challenge is how to resolve the “public option” controversy. While one would have thought weightier issues such as the shape of Medicare reform, the taxation required to support coverage subsidies, or the presence or absence of mandates would have been pivotal in this debate, the seemingly peripheral issue of a Medicare-like “public option” might be the hill on which health reform dies.

The reasons are almost completely political. The Democratic base wants to end private health insurance. Single payer advocates view the public option as a down payment on an entirely public health financing system. Public option advocates believe that the plan’s bargaining power will drive private insurers out of business. (I’ve argued in a previous blog posting that, without fully understanding what they are doing, these single payer advocates are probably right.)

Moderate Democrats, who will need independent and some Republican votes to be re-elected next year, cannot afford to be perceived as advocating a further expansion of government influence. After deeply unpopular partial nationalizations of our banking and auto industries, public support for further expansion of government power appears to be waning. Republicans appear ready to capitalize on the growing backlash against deficits and growing government power in the coming Congressional election cycle.

The Varying Flavors Of The Public Option

In reality, no one has a clear idea how a new public option would affect health insurance markets since so much depends on payment strategy. Hard core House advocates have advocated a Medicare “cram down”- forcing providers to accept Medicare rates for the public plan as a condition of continuing to participate in Medicare. The cramdown would trigger a tsunami of cost shifting onto private insurance, frantic re-basing of private insurance provider contracts, and drowning of marginally profitable hospitals and physicians. Providers facing a cramdown will quickly add their thus-far-silent voices to the crescendo of doubt or outright opposition to any final legislation.

More cautious advocates of a public option rely on negotiated rates, or some multiple of Medicare payment, and voluntary physician and hospital enrollment at those rates.

No one knows if the networks that result from negotiated rates will be robust enough to sustain public plan enrollment. The “co-operatives” advocated by some moderates are unlikely to have any meaningful effect either on coverage or cost. Those who advocate a “trigger” leading to state sponsored public plans should be sobered by the fact that states that already have such plans, like Washington, are eviscerating their funding as we speak, leaving safety net providers gasping.

The Solution: Voluntary Early Enrollment In Medicare

The solution to the public option conundrum is so obvious that it’s striking how little discussion there is of it: encourage voluntary early enrollment in Medicare. Unlike the public option, voluntary Medicare buy-in has a significant health policy history. John Kerry included it in his health reform proposals in 2004. Bill Clinton had a more modest proposal (voluntary buy-in after age 62) in his first three budgets. Medicare analysts Marilyn Moon and Christine Cassel have long advocated this approach.

If one is thinking strategically, the most worrisome segment of the uninsured is the 11.3 million aged 45-64, who were the fastest growing age cohort of uncovered folk from 2007-2008. It is one thing to be 22 and immortal and uncovered; it is quite another to be a 52 year old diabetic widow with hypertension, not disabled but thirteen years shy of Medicare and uncovered. The health system and society’s biggest risks among the uncovered are its oldest members. It is these older uninsured people who generate the largest hospital bills, contributing disproportionately to hospitals’ uncompensated care burden.

How It Would Work

We already have a public plan for older Americans. Let’s simply lower the Medicare eligibility age, and encourage the sickest baby boomers voluntarily to join Medicare earlier than age 65. We should waive the two-year wait to enroll in Medicare after obtaining Social Security disability coverage. At the same time, we should let the non-disabled enroll in Medicare after 55 at the program’s estimated actuarial cost.

Employers could fund the premiums at Medicare’s cost for their 55-plus employees. This would have the benefit of lowering the average age and morbidity burden of their remaining privately insured group, and reduce their overall health insurance costs. Individuals with resources could pay their own premiums, which would be substantially cheaper than the individual and small group rates for their age. Those without the means could receive Medicare subsidy help on a sliding scale based on income. Not all of the newly enrolled will leave private markets; they will have the same choice of traditional vs. Medicare Advantage plans that present beneficiaries do.

State And Federal Budgetary Benefits

Money for these subsidies is already included in reform legislation in the form of funding for newly eligible Medicaid adults with incomes below 133% of poverty. A lot of lower income boomers would sooner kill themselves than enroll in Medicaid in any event and will blow off individual mandate penalties, remaining uncovered. Moving the older segment of this group into Medicare would alleviate some of the states’ feared future burden of increased Medicaid spending.

In addition to the prospect of a rapid setup, voluntary Medicare buy-in carries with it scorable out year Medicare savings. In 2007, McWilliams and colleagues reported that uninsured people with previous chronic conditions who enroll in Medicare not only have higher Medicare costs at enrollment, but remain sicker than their age peers as long as seven years after enrollment. This is intuitively obvious; those who cannot afford medication for disease like hypertension, diabetes, asthma and other controllable conditions will be far worse off than their covered age peers. (See also the article by Andrew Wilper and coauthors, published today on the Health Affairs Web site, finding that undiagnosed and uncontrolled chronic illness, which is common among insured people, is even more frequent among the uninsured.)

Unlike the public option, the impact of voluntary Medicare buy-in on private health insurance markets would likely be manageable. One could expect millions (perhaps 3-5 million) but not tens of millions of takers. The inflow of additional Medicare lives would strengthen Medicare’s bargaining power with providers without triggering a wave of cost shifting or a ruinous rebasing of private insurance rates. And, as mentioned earlier, those with satisfactory private plans could remain enrolled through Medicare Advantage.

Medicare could take advantage of the additional group of chronically ill older adults to strengthen its chronic care management capabilities. The “medical home” and disease management pilots proposed in health reform legislation would have a lot of new targets; the highest and best use of these new care models will be to deal with the previously unmanaged chronic conditions in the early Medicare enrollment population, as well as those already enrolled through dual eligibility with Medicaid. Strengthening Medicare’s primary care compensation generally (by far more than just 6-8%) would also be an essential correlate to letting a large new high-risk population into Medicare.

For conservatives seeking to draw the line at no further expansion of public coverage, this solution would not pass political muster. Many of these folks disagree that we have a coverage problem now. Hard core “progressives” won’t let go of the single payer “down payment”, even if it has no chance of passing the Senate. Neither of these groups will provide the swing votes necessary for final passage in any event.

However, for moderates of both parties seeking to cover the high risk segment of the uninsured population with minimum disruption quickly (e.g., without a 3-5 year set up time), early Medicare buy-in would be a much faster, higher impact alternative to the present, speculative alternatives, such as co-ops or state plans triggered by mysterious future events, etc. It would also be cheaper than subsidizing private insurance for the same population, saving crucial subsidy dollars and reducing the tax burden otherwise required.

Maybe it’s too simple a solution to be practical in the present superheated political climate. However, leveraging the public plan we already have might provide a way out of a seemingly intractable political problem that might otherwise crater health reform in 2009. It solves numerous problems: speed to results, reducing disruption to markets, affordability, and a contribution to bending the Medicare cost curve when the boomers flood the program over the next decade. Voluntary Medicare buy-in is worth considering.

Jeff Goldsmith is president of Health Futures Inc. He is also the author of a book released this year titled “The Long Baby Boom: An Optimistic Vision for a Graying Generation.” Health Futures specializes in corporate strategic planning and forecasting future health care trends. This post was first published on the Health Affairs blog.

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RHytonenR QuinnPhillipJeff GoldsmithRobert Recent comment authors
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RHytonen
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RHytonen

There is a LOT that “MD as H…” doesn’t know about health care and particularly government entitlements.
It starts with a common misconception that Medicare (or for that matter SS,) is a separate fund, or even simply reported as such.
If it were, it would STILL produce a SURPLUS.
http://www.forbes.com/2001/08/28/0828topnews.html
http://budget.senate.gov/democratic/background/2001/medicare_trustfund_factsheet072301.pdf
Read the articles, there are some TELLING comments by the CBO – who btw are not known for conspiracy theories.

R Quinn
Guest

This makes a great deal of sense as the alternative to a new public option and I have asked this question myself, why not use Medicare if it is all that great as we are told. As one commentator noted is the the most successful example of a public option we have, but its going broke. We don’t need a public option to deal with the health care issues we face, but if we are going to have such an option why not use the one we have even with all its faults. Do we need two public options going… Read more »

Nate
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Nate

“I think there is just as much “fraud” of this type- rampant self dealing- on the private insurance side.” Based on what? I process those claims, if I could cut my clients cost 14% overnight just be rewriting our plan docs to not allow any self referral it would have been done years ago. It appears you really don’t know how the majority of the market works. Well over half of all employer insurance is provided through self funded plans. The claims payor/TPA is employed to do just that pay claims. Their are 2000+ of us. We are very interchangable,… Read more »

MD as HELL
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MD as HELL

Jeff,
Medicare is not insurance and is not based on risk, except political risk for unfunding it or telling a beneficiary “no”, which never happens. Expanding Medicare is like expanding a black hole. It will consume more and consume it faster.
Not until the patient has his own skin in the game will the utilization and therefore the cost change.

Jeff Goldsmith
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Jeff Goldsmith

As you may know if you’ve read my postings, I’m an outspoken advocate of tightening Medicare fraud and abuse laws. There will be a post on this in a day or two. It’s actually the stuff that’s legal that is the problem: doctors self-referring patients for radiological scans, surgery, hospitals admissions to facilities they have an ownership interest in. I think there is just as much “fraud” of this type- rampant self dealing- on the private insurance side. The scandal is: what’s legal. And I stand by my earlier statement that the big money is in running up the tab… Read more »

Peter
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Peter

Medicare is working with two hands tied behind it’s back on fraud. It is mandated to pay within 15 and 30 days, no questions, and it has been allocated very little for fraud investigation/enforcment. The FBI and justice department is now doing much more fraud investigations and prosecutions. Just because fraud is high now, and can be fixed, does not mean that Medicare is a failure. As Jeff said what is the difference between fraud from “legitimate” private medical services over-utilizing and fraud by illegitimate medical crooks?

Nate
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Nate

430 billion paid with 60 billion lost to fraud is 14% fraud rate, guess I need to update my argument. The one lady has been telling Medicare for 6 years people are submitting false bills and still nothing done. Brillant idea Jeff, lets add another 3-6 million people to this mess and celebrate we didn’t add tens of millions. As to; “Finally, about the 10% waste and fraud in Medicare, as someone who spends way too much time with employers and not enough with the actual care system, Nate might be unaware that the BIG MONEY in fraud and abuse… Read more »

Nate
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Nate

Phillip,
you are a moron apparently incapable of reading. I make my entire living off taking business away from insurance companies. Thanks to me my clients reduce the premium they pay to evil insurance companies 30-60% and have net savings of 10-20%+. I know your not smart enough to grasp this, let alone somehow make a feeble dimwitted insult out of it but try to get the basic facts right.
Jeff care to comment on the new 60 minutes story on Medicare Fraud and the AP story about 2.2% profit margins? Both pretty clearly kill your entire post.

MD as HELL
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MD as HELL

Margalit, You don’t have to buy car insurance. You just have to have financial responsibility for your liabilities. You don’t have to have either one if you don’t have a car. Phillip, What is it with you and class warfare? I am in a class… If you really read what I write, I am all about freedom. I am for the government reigning in its own out of control spending and political promises and leaving the private sector private. I am not salaried, so what I make is demand driven. I do no big procedures that are elective, so I… Read more »

Phillip
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Phillip

MD as HELL, You only seem to ever talk about money and not patient care. You clearly do what you do to make money. That seems to be your first priority. You likely represent a class of doctors and an industry that makes way to much money for what you do. You should learn a thing or two from many of the health professionals around the world, who are not sucked into this U.S. idea that it is a god given right that medical practionners should get rich doing what they do. U.S. doctors are the highest paid, by far,… Read more »

Margalit Gur-Arie
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Margalit Gur-Arie

No!!! But…. 🙂 We encounter the federal government every single day. Obviously, we all pay taxes, some of them for Medicare which everybody will encounter once they reach 65 years of age. I’ve been ponying up for many things ordered by the government and so have you. Food stamps, wars, bank bailouts, etc. I really don’t see how ponying up for universal healthcare is any different. If you are referring to the mandate to buy health insurance, then, I agree, it is rather strange, even though they mandate that I buy car insurance too. I would prefer to be taxed… Read more »

MD as HELL
Guest
MD as HELL

Never before has there been a requirement simply because you were in the country. Something other than existence had to happen to have an encounter with the federal government. Not with this proposal. Now you are derelict if you do not pony up for something ordered by the government. If they can do that, then they can order you to live in a certain place and work in a certain place and meet any other arbitrary and random requirements. Does that sound like “general welfare” to you , Margalit? Please say “no”.

Margalit Gur-Arie
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Margalit Gur-Arie

MD as HELL,
I guess the smoldering view is largely dependent on how one defines the phrase “promote the general Welfare”, and the word “general” in particular.

MD as HELL
Guest
MD as HELL

Margalit,
You have the right to yell “Fire!” in a crowded theatre if it IS on fire. Our Constitution is smoldering right now.

MD as HELL
Guest
MD as HELL

Do you think gen Y will vote to pay the bill?