A proposal by Senator Debbie Stabenow (D-MI) and other Senate Democrats would allow people between the ages of 50 and 64 to buy into Medicare (the Medicare at 50 Act).
The obvious question is: how much would it cost to buy in? If the proposal is revenue-neutral, new enrollees would have to pay actuarily fair premiums. How much would that be?
Currently Medicare spends $11,582 a year per beneficiary. That’s a lot more than anyone in the private sector is paying. The actual costs are likely to be a bit lower because health care costs for young seniors are less than costs for seniors currently in the program. Right now, Medicare doesn’t discriminate on the basis of age—all seniors pay the same premiums, regardless of how old they are. But even with an age adjustment, a fair premium for “young seniors” on Medicare is likely to be a lot higher than for privately purchased health insurance.
It may be—in fact it is almost a certainty—that the Senate Democrats plan on charging the new enrollees a lot less than actuarially fair premiums. For example, Medicare currently charges enrollees 25 percent of the real cost of Part B (doctor services). If young enrollees got the same deal, the other 75 percent would be a gift from Uncle Sam.
But if that is what the Senate Democrats have in mind, the young seniors should make a counter offer: “Send us the subsidy in the form of a check we can deposit in our bank account and let us stick with the insurance we already have.”
There are several reasons why the counter offer makes sense. Let’s take a brief look.
Medicare is lousy insurance. Anyone who leaves an employer plan to join Medicare will immediately become aware of some stark differences. To begin with, Medicare doesn’t have any cap on catastrophic costs for the patient—something all private insurance is required to have. If a Medicare enrollee stays in a hospital long enough, eventually she will have to pay 100 percent of the bill, no matter how high the costs soar. Medicare Part B has a 20 percent coinsurance, also with no cap. And core Medicare doesn’t even cover drugs.
It is illegal for a private insurance company to sell a plan like this. If they tried, the executives would run afoul of the law, and maybe face criminal penalties.
To fill the holes in Medicare Parts A and B, most seniors purchase Medigap insurance and to obtain drug coverage they purchase Medicare Part D. As a result, seniors on Medicare end up paying three premiums to three plans—an arrangement all health economists recognize is terribly costly and inefficient and something nonseniors never have to do.
After all that, Medicare enrollees still don’t have the protection that nonseniors have. Under Obamacare legislation, virtually all private insurance is required to cap the out-of-pocket costs of the enrollees. By contrast, seniors on Medicare (after paying all three premiums) still face a 5 percent coinsurance exposure on their drug costs and there is no limit to how high those costs can be.
Access to virtual medicine and other patient services is uncertain. As I pointed out in What You Need to Know About Medicare for All, Medicare has been the last insurer to cover virtually every innovation in health care that improves access and enhances the quality of care.
In 2003, the benefit structure of Medicare looked pretty much the same as it did 40 years earlier. But in 1965, drugs were relatively inexpensive and their impact on care relatively modest. Through time, they became more expensive. They also became the most cost-effective medical therapy. When Medicare began covering drugs (through Part D) in 2004 it started providing coverage that virtually all private insurers and all employers had already offered years earlier.
Medicare has also been slow to adopt technologies that are becoming more common in the private sector. It won’t pay for Uber-type house calls at nights and on weekends, although the cost and the wait times are far below those of emergency room visits. Nor will it pay for concierge doctor services, now available to seniors for as little as $100 a month—despite the potential to improve access and reduce costs.
Amazingly, when Covid hit, it was illegal for Medicare doctors to consult with patients by means of phone, email, Zoom, Skype, Facebook and other electronic means. Medicare did pay for telemedical services that linked hospital specialists with patients in rural areas. But it wouldn’t pay for those same services in urban areas—where most people lived.
The only reason seniors can get doctor consultations in their own homes today is because of three years of preparation by the Trump administration (which believed in telemedicine) and a temporary suspension of the regulations by Congress. None of this deregulation is permanent, however. It could easily go away when Covid goes away.
No more employer subsidy. Most employees get health insurance through their employer, and employers typically pay 75 percent of the cost. As noted, this is much better insurance than Medicare offers. Economists are convinced that employer payments for health insurance are a dollar-for-dollar subsidy for wages. Thus, employees are earning their benefits in the same way they earn their wages. However, the economists’ conclusion applies to employees as a group, not as individuals. If one employee turned down an employer’s health plan offer and enrolled in Medicare instead, the employer would not raise the employee’s wages by paying in cash what was previously paid as a benefit.
In fact, it is illegal under the tax law for employees to cash out their benefits—receiving as taxable money income what would have been paid as a nontaxed in-kind benefit.
No more tax subsidies. Although Medicare enrollees pay premiums that are only a fraction of the real cost of their insurance, what they do pay is with after-tax money. Almost all non-seniors, by contrast, get tax subsidies that lower the cost of their coverage. At work, the employer’s premium payments are not included in the employee’s taxable income. Often, employees can pay their share of the premium with pre-tax dollars as well. Obamacare subsidies are all tax credits. Self-employed people who earn too much to get an Obamacare subsidy can claim a tax deduction for their premiums.
No more Obamacare premium compression. In a free market for heath insurance, premiums for people in their 50s and 60s would exceed premiums for those in their 20s by a factor of 6 to 1. Obamacare (the Affordable Care Act) limits the difference to 3 to 1, however. That means insurers are forced to overcharge younger buyers so they can undercharge older buyers in the market for individual insurance. This is just another of the many ways that health insurance for older buyers is subsidized in the current system.
No health savings accounts. Seniors are the only people in our economy who are not permitted to have a health savings account—allowing them to manage some of their own health care dollars. It seems almost certain that this same restriction would apply to younger people who enroll under the Medicare at 50 Act.
Counter offer: give us the money instead. The government subsidy to current enrollees in Medicare is in the range of $8,000 to $9,000 a year.It appears that Senate Democrats would like to extend a similar subsidy to people age 50 to 64—although why individuals age 49 or 48 get left out of this largesse is unclear.
There are many details that are yet to be pinned down. Yet it is hard to image a scenario under which young seniors would not be better off if they got their proposed subsidy in the form of a check to be deposited in a bank account instead of being enrolled in a clearly inferior health care plan.
At a minimum, young seniors should be given a choice: take the money and stay in the current system or use the money to pay an actuarially fair premium and buy into Medicare.
This article was also published in Forbes