Sorting through Reform Proposals

“The leading Medicare for All bills in the House and Senate phases out all private coverage within four years. Many debate participants eagerly raised their hands when asked in a debate whether their vision is a program that eliminate private insurers. That’s a big deal, since private insurers cover more than 200 million Americans.”

William G. (Bill) Stuart

Director of Strategy and Compliance

August 8, 2019

Imagine you’re playing final Jeopardy. The clue is “Joe Sestak, Steve Bullock, and Wayne Messam.” Would you know that they’re three of the two dozen Democrats running for the party’s nomination in 2020? Or would you have responded, “Who are three people who’ve never been in my kitchen”?

In fact, all three men – respectively a member of Congress from Pennsylvania, the governor of Montana, and mayor of Miramar, FL – are running for president, alongside more familiar names like Warren, Harris, Biden, Booker, Sanders, and Buttigieg. Polls indicate that the future of the design, delivery, and financing of medical care is Democrat voters’ top concern entering the election, and the candidates generally favor more government involvement.

Their visions vary, however. Let’s look at three distinct approaches that have emerged during the debates and will be debated more strenuously if Democrats come out of the 2020 election in a position to enact major legislation.

Medicare for All

Some Democrats have dreamed about a single-payer system in which the federal government designs a one-size-fits-all program that enrolls all Americans as far back as the New Deal and the birth of Social Security. The term Medicare for All was introduced when it scored better in focus groups than single payer, one size fits all, and government monopoly.

 There are a number of Medicare for All proposals in the party and among presidential candidates, and they vary by degree. Under these proposals, the federal government defines a standard package of benefits. Depending on the proposal, patients may or may not experience out-of-pocket costs when they receive care from physicians, outpatient therapists, or hospitals. The program is financed by tax revenue rather than premiums collected from employers, employees, and people enrolled in nongroup coverage.

Proponents believe that the plan will lower costs and provide equal access to care, regardless of income. Opponents believe that the plan will stifle innovation, create a one-size-fits-none program, and resemble the Department of Veterans Services (VA) system in terms of service delivery, safety, and efficacy.

When candidates start talking about Medicare for All, listen for clues about the actual design of the program. These clues will be scarce, as policy details always are at this point in the campaign season. Here are some features that distinguish the various plans:

What are patients’ out-of-pocket financial responsibilities? Some plans provide care with no patient cost-sharing. Others feature some deductibles, coinsurance, and copays more similar to Medicare. Think critically about how low financial barriers to care will affect patient demands for services.

Do private insurers remain involved this new design, effectively playing the role of regulated utilities, or do they cease to exist? The leading Medicare for All bills in the House and Senate phases out all private coverage within four years. Many debate participants eagerly raised their hands when asked in a debate whether their vision is a program that eliminate private insurers. That’s a big deal, since private insurers cover more than 200 million Americans through employer-sponsored coverage, nongroup plans, and Medicare Advantage.

Is the government plan the exclusive provider of all services, or does it offer core services and then allow employers and individuals to purchase private supplementary coverage? In many countries in which government owns the monopoly on the delivery of essential medical care, private insurers sell supplementary plans that offer enhanced coverage. This design is similar to traditional Medicare, in which the government provides a standard package of benefits to everyone and allows private insurers to sell government-approved plans that cover some patient out-of-pocket costs and extend certain benefits.

What services are covered? Some plans are limited to medical care only, whereas others incorporate dental and vision coverage and even long-term care (all of which are covered by the government under the Sanders legislation). The current Medicare system covers only medical services. Commercial plans also cover only medical services, leaving it to employers and individuals to purchase (or not purchase) coverage for dental and vision services, hearing aids, and nursing-home costs. The more services that are added to the standard coverage, the more costly the plan.

 How is the plan financed? All estimates (and the most widely accepted one is about $32 trillion over 10 years, which would nearly double the size of the federal budget) are going to dramatically underestimate the real cost, if the unbroken history of low government projections holds in this case. Nevertheless, it’s important to understand whether the plan will be financed by new payroll taxes (which always disproportionately harm the poor), higher income taxes, new taxes like a national sales tax or value-added tax or inflationary deficit spending and borrowing. And be wary of a candidate who says that the rich will pay for it. As all other countries with a government monopoly have learned, everyone pays higher taxes.

Public Option

Many Democrats strongly supported this approach in the Affordable Care Act, but they had to jettison it when even with a veto-proof majority the party couldn’t rally enough support for this provision. The Public Option allows the federal government to become an insurer and compete directly with private insurers to deliver coverage in the group and nongroup markets.

Proponents believe that this approach increases consumer choice and saves money, since the federal government can negotiate better prices that private insurers must match to remain in business. Opponents argue that the government plan has an unfair competitive advantage because it dictates prices that don’t cover providers’ costs. Providers demand higher reimbursements from private insurers, which widens the gap between private and Public Option premiums.

As you listen to candidates describe this plan, consider these questions:

How is the Public Option priced? The federal government can use blunt force to dictate reimbursement levels to providers and can hide costs (such as having the Internal Revenue Service collect premiums). When those reimbursements don’t cover costs, someone has to cover them. Private insurers are limited to using their own resources, whereas the federal government can simply claim more of the total output of goods and services in the economy.

Who can enroll? Is this option limited to some combination of nongroup buyers and small-group employers, as were the coops under the ACA? Or can employers of all sizes offer the Public Option as a choice or an exclusive offering?

Will the federal government offer subsidies to private insurers to offset the correspondingly higher reimbursements that they must negotiate with providers to offset lower reimbursements through the Public Option? It’s a safe bet that the government program will reimburse at below-market rates, as Medicare does, driving down providers’ revenue and prompting them to negotiate even higher rates from private insurers.

Will the Public Option be required to satisfy state mandates? State-mandated benefits like unlimited infertility, circumcisions, and low-protein foods increase premiums for private insurers. Will the Public Option be playing on a level playing field, or can it determine which mandates it wants to ignore?

Will the Public Option be required to follow all insurer requirements and be allowed to fail? Insurers are regulated by states and must comply with reserve requirements, appeals processes, and other consumer protections. If they fail to do so, they risk going out of business. Will the Public Option play by the same set of rules, or will it be regulated by the federal government, face different requirements than its competitors, and not face the discipline of failing for not meeting consumer preferences?

Medicare Buy-in

Sen. Debbie Stabenow (D-MI)  introduced S 470, a bill that would allow Americans as young as age 50 to buy into Medicare. Democrat presidential candidates Sens. Kamala Harris (D-CA), Amy Klobuchar (D-MN), Corey Booker (D-NJ), and Kirsten Gillibrand (D-NY) have all co-sponsored the bill.

This option is attractive to early retirees, as well as older Americans who trade in corporate life to become their own bosses or work for a cause that stirs their passion but doesn’t provide employer coverage. When these people purchase nongroup coverage, they often pay $800 or more per month for self-only coverage when they don’t qualify for a taxpayer subsidy.

Proponents argue that this option provides a safety net for those who can no longer work or want to move from co prorate jobs to mission-driven positions that pay less and often don’t include medical coverage. They believe that a Medicare Buy-in strengthens both Medicare (by enrolling younger people with, on average, lower claims) and the private market (by removing older people with, on average, higher claims). Opponents believe that this option has the same effect as the Public Option: Medicare reimburses providers at below-market rates, forcing providers to demand higher reimbursements from private insurers. This shift increases the premium gap between the two programs. In their view, it’s a back door to a government monopoly one-size-fits-all system.

As you listen to candidates talk about the Medicare Buy-in, ask yourself these questions:

Can anyone enroll, or just people not offered affordable group coverage? That’s a difference of about 160 million people. If anyone can enroll, the government can price the Medicare Buy-in option to crush private coverage.

Can employers offer the Medicare Buy-in as part (or all) of its group coverage? If so, small group only or all employers? This aspect of the design will determine how quickly Medicare Buy-in moves the country toward a government monopoly.

How is this plan priced? Part A is financed by a payroll tax, and revenues don’t cover claims expenses. By 2026, the surplus accumulated during the prior 60 years will have vanished. Can a bankrupt system allow people to start collecting benefits up to 15 years before the current age? And what about premiums for Part B and Part D, which are subsidized by up to 75% (more than $6,000 per year) by general revenues? Will taxpayers subsidize Medicare Buy-in enrollees premiums, too? With what revenue stream?

The Bottom Line

Very few people are happy with the cost of medical care today. But it’s a huge leap from not being satisfied with the status quo to using government fiat to command nearly one-fifth of the nation’s economy and removing decisions about care, cost, and quality from doctors, patients, and insurers and giving that power to government bureaucrats.

What We’re Reading

Unless you’re reading my work for the first time, you know how passionate I am about Health Savings Accounts as vehicles for retirement savings. Kiplinger reinforces this concept here.

Rep. Ami Bera (D-CA) and Rep. Jason Smith (R-MO) recently introduced HR 3796,  a bill that allows Medicare enrollees to open and contribute to a Health Savings Account. The proposed legislation includes several trade-offs. Learn more about the trade-offs here, but not without reading my rebuttal here.


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