Research Desk: How high would the premiums on a Medicare buy-in plan be?
If anyone could get Medicare, but those under 65 would purchase it just like they did any other health insurance, what premiums would Medicare have to charge (compared with current private rates) to make the Medicare trust fund indefinitely stable. In other words, could we save Medicare by allowing younger people to choose it as their health insurance, paying premiums competitive with private options?
The most prominent Medicare buy-in proposals have tended to be limited to people just under the age of Medicare eligibility, who have higher health costs than the general population and thus face higher premiums in both the private market and a hypothetical Medicare buy-in plan. In 2008 the CBO looked at a plan to let people between 62 and 64 buy in to Medicare and found that, for the plan to be self-financing, the annual premium would have to be $7,600 ($634 a month). In 2009, when Congress was considering a broader buy-in for people aged 55-64, the CBO estimated the monthly premium to be $600, with the lower premium presumably due to the lower health costs of people aged 55-61. Whether this is a good deal or not depends on whether you have preexisting conditions. As this AARP report notes, a 60-year-old Maryland woman, if not excluded because of preexisting conditions or some other factor, could get a typical Aetna plan for $509 a month in 2009; if the same woman had a preexisting condition, a PPO could cost $773 a month, and an HMO could cost a staggering $1,241 a month.
Obviously, these numbers will change as the Affordable Care Act, with its ban on insurers considering preexisting conditions, and subsidies for private insurance, takes effect. Using the Kaiser Family Foundation’s handy calculator, I found that for a 60-year-old head of a family of four making $54,766 a year, the median income for someone aged 55-59 (I didn’t use the 60-64 figure, as that includes a lot of people in early retirement), would pay an annual premium of $4,098 ($342 a month). The actual premium would be $24,042 a year, but almost $20,000 of that is covered by tax credits. Compared with that, a $600-634 monthly premium for a self-financing Medicare buy-in doesn’t look that attractive. As Tim Noah noted during the health-care debate, this is why most Medicare buy-in proposals include their own subsidies. But once those enter the picture, the buy-in starts to cost money, as opposing to raising enough to subsidize the rest of Medicare, as in DavidinCambridge’s proposal.
But unlike these proposals, DavidinCambridge is proposing letting anyone under 65, not just people in their 50s and 60s, buy in to Medicare. This makes the outlook for premiums considerably rosier. Last year, the CBO analyzed a proposal from Rep. Pete Stark that would set up a public option in the health exchanges, which would charge Medicare rates to providers, and whose premiums would be set at a level that covers expenses. This makes for a pretty good proxy of what a universal Medicare buy-in would look like. The CBO found that premiums would be about 5 percent to 7 percent lower than that of private health plans in health exchanges. The plan would reduce the deficit by about $53 billion over 10 years. If we were to increase premiums above the level required to cover costs, as DavidinCambridge suggests, the savings would be even greater. One would have to balance the revenue gains from these premium hikes against the possibility that they’d lead fewer people to take advantage of the plan, which could counteract that increase in revenue by pushing more people into private exchange plans that are eligible for government-provided subsidies.
Now, $53 billion isn’t nothing, and it’s possible DavidinCambridge's specific plan could raise still more money, but it isn’t in the ballpark of the changes needed to make Medicare solvent. But it does cut costs, and would make for a good insurance option for a number of people.