Yesterday, I wrote about Democrats mulling a public option “compromise” that would allow Americans aged 55 to 64 to buy into the Medicare program. Now the Politico reports that in addition to the Medicare buy in, Democrats would want to expand Medicaid to 150 percent of the poverty level, rather than the 133 percent level in the current bill. So I thought I’d take a moment to discuss the cost implications of such proposals.
Without knowing how the Medicare buy-in would be structured, it’s difficult to say how costly it would be, but we do have some sense of what factors would affect the proposal’s cost. In a December 2008 report, the Congressional Budget Office evaluated a theoretical proposal to allow people aged 62 to 64 to buy into Medicare, and found that the proposal would essentially be budget neutral, because it assumed that Congress would set premiums to cover the cost of coverage. There would be a small increase in Social Security obligations because CBO assumed some people would retire earlier if they didn’t have to work to receive health benefits. But annual premiums would reach $7,600 for an individual in 2011, and therefore it assumed only 300,000 people would buy into the program. This presented a risk that it would have only a modest impact on the number of uninsured in that age group, and that the people willing to pay the high premiums would be the sickest (a problem known as “adverse selection”).
In another study, the Kaiser Family Foundation explored the issues involved in allowing people 55 and older to buy into Medicare. It noted that 4 million people over 55 were uninsured, and concluded that to significantly reduce that number and to attract healthier people to the program, there would have to be subsidies, which would increase government spending. The magnitude of the spending increase would obviously depend on the value of the subsidy. Given that Medicare is already bankrupting the country on its current trajectory, it would be risky to woo millions more into the system.
Meanwhile, we already have some idea of the costs involved in the Medicaid expansion. The Congressional Budget Office has evaluated the House health care bill (which expands Medicaid to 150 percent of the poverty level) and projected it to cost $425 billion from 2010-19, with an additional $34 billion passed on to the states. That compares to the $374 billion cost, and $25 billion added cost to the states under the Senate bill. (Part of the lower cost of the Senate bill is attributable to implementing the bill a year later.)
I’m still baffled as to how this would count as a compromise for moderate Democrats who were concerned about the creation of a new government-run insurer. The hope among single-payer advocates was that by creating a new government-run plan, they could gradually shift people to government health care over time. But the idea became watered down, so as it stands now, liberals could get more people under a stronger government health care umbrella by simply expanding the main two existing government programs. All of the arguments against creating a “public option” still exist in the case of a Medicare buy in, and if anything, are stronger.
One of the big fears of creating the new government plan in the first place was that it would pay doctors and hospitals at lower Medicare payment rates, forcing those providers to cut services and/or shift costs onto those with private coverage. But in the current version, the new government plan cannot tie rates to Medicare. Even Democratic Sen. Kent Conrad made this point yesterday, saying that his issues with the proposed Medicare expansion are “many of the same problems I had with previous variations of the public option, which is that then ties you to Medicare levels of reimbursement for a whole new population. For states like mine, that’s a big problem.”
Given Senate Majority Leader Harry Reid’s intention to try and ram something through the Senate by year’s end, it isn’t clear whether we’d even have a CBO analysis of the modified bill before a vote, even though such changes could significantly alter the cost of the legislation, in addition to the affects it could have on the solvency of government entitlements, and on payments to doctors nationwide.
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