Emerging Medicare buy-in proposal could have costly unintended consequences

Thursday, December 10, 2009

THE ONLY THING more unsettling than watching legislative sausage being made is watching it being made on the fly. The 11th-hour "compromise" on health-care reform and the public option supposedly includes an expansion of Medicare to let people ages 55 to 64 buy into the program. This is an idea dating to at least the Clinton administration, and Senate Finance Committee Chairman Max Baucus (D-Mont.) originally proposed allowing the buy-in as a temporary measure before the new insurance exchanges get underway. However, the last-minute introduction of this idea within the broader context of health reform raises numerous questions -- not least of which is whether this proposal is a far more dramatic step toward a single-payer system than lawmakers on either side realize.

The details of how the buy-in would work are still sketchy and still being fleshed out, but the basic notion is that uninsured individuals 55 to 64 who would be eligible to participate in the newly created insurance exchanges could choose instead to purchase coverage through Medicare. In theory, this would not add to Medicare costs because the coverage would have to be paid for -- either out of pocket or with the subsidies that would be provided to those at lower income levels to purchase insurance on the exchanges. The notion is that, because Medicare pays lower rates to health-care providers than do private insurers, the coverage would tend to cost less than a private plan. The complication is understanding what effect the buy-in option would have on the new insurance exchanges and, more important, on the larger health-care system.

Currently, Medicare benefits are less generous in significant ways than the plans to be offered on the exchanges. For instance, there is no cap on out-of-pocket expenses. So would near-seniors who buy in to Medicare get Medicare-level benefits? If so, who would tend to purchase that coverage? Sicker near-seniors might be better off purchasing private insurance on the an exchange. But the educated guessing -- and that's a generous description -- is that sicker near-seniors might tend to place more trust in a government-run program; they might assume, with good reason, that the government will be more accommodating in approving treatments, and they might flock to Medicare. That would raise premium costs and, correspondingly, the pressure to dip into federal funds for extra help.

In addition, the insurance exchanges proposal is being increasingly sliced and diced in ways that could narrow its effectiveness. Remember, the overall concept is to group together enough people to spread the risk and obtain better rates. But so-called "young invincibles" -- the under-30 crowd -- would already be allowed to opt out of the regular exchange plans and purchase high-deductible catastrophic coverage. Those with incomes under 133 percent of the poverty level would be covered by Medicaid. The exchanges risk becoming less effective the more they are Balkanized this way.

Presumably, the expanded Medicare program would pay Medicare rates to providers, raising the question of the spillover effects on a health-care system already stressed by a dramatic expansion of Medicaid. Will providers cut costs -- or will they shift them to private insurers, driving up premiums? Will they stop taking Medicare patients or go to Congress demanding higher rates? Once 55-year-olds are in, they are not likely to be kicked out, and the pressure will be on to expand the program to make more people eligible. The irony of this late-breaking Medicare proposal is that it could be a bigger step toward a single-payer system than the milquetoast public option plans rejected by Senate moderates as too disruptive of the private market.

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