Kaiser has just posted a report which suggests that the Medicare Buy-In will be even more expensive than I thought. It turns out that median family income for Americans 55 to 64 who don’t have insurance is just $22,510. By contrast, as I reported yesterday, median income for all Americans in that age group is substantially higher–$58,000. Many have jobs—and employer-based insurance.
This means that the Medicare Buy-In will be attracting seniors who are much poorer than average. In this country, there is a high correlation between poverty and poor health. The group most likely to opt into Medicare will be sicker—and need more care—than the average middle-aged American.
Certainly, this is an argument for reaching out and including this cohort in our health care system. But it does mean that if we red-line these relatively poor 55-64 year olds, putting them in a separate pool, premiums in that pool will be very high.
Yesterday, I worried that most 55-64 year olds won’t be able to afford premiums which, I estimate, could run as high as $10,000 per individual. Others put the cost at $8,000. At this point, any number is a guesstimate, but I’ll stick with $10,000—especially if the new plan puts a cap on out-of-pocket spending (something Medicare doesn’t do.) And if Medicare for the middle-aged is forced to negotiate fees with providers, inevitably, it would wind up paying more than Medicare currently pays. Many providers just won’t be that eager to take in these older poorer patients. Their cases will be complicated; treating them will be costly. This is how hospitals and doctors lose money.
Here’s the good news: Kaiser’s report suggests that I shouldn’t worry so much about whether the middle-aged will be able to afford the Medicare buy-in. Because their incomes are modest, most will qualify for close to a full subsidy. So the middle-aged couple won’t be paying $20,000 a year for insurance: Taxpayers (or Medicare?) will foot the bill.
Over at GoozNews, Merrill Goozner suggest that in the long-run, Medicare will save money. The people in this plan won’t be as sick when they turn 65 because they will have been receiving care since they were. But frankly, I’m not convinced. If you’re poor (living in a family with joint income of less than $22,510 a year) , and 55, chances are you’re in poor health. Good health care may well keep you going—and of course I’m in favor of providing health care for the poor. But at 55, it’s probably too late to turn a person suffering from two or three chronic diseases into someone who won’t need a great deal of medical care in her sixties and seventies.
Again, there is no question in my mind: as a civilized society we should provide care for older, poorer Americans. The only question is this– how do we pay for it?
Traditionally, we pay for healthcare by spreading the risk. Everyone in the pool, no one out. The young, the old, the sick, and the healthy all share in the cost. None of us knows who might develop a brain tumor tomorrow. We spread the risk so that insurance premiums are lower for everyone—and we hope that for many years, we’re paying in more than we’re taking out of the pool.
But rather than pooling the risk, the Senate compromise hands younger, healthier Americans over to the private market. As HealthBeat reader Dr. Steve Auerbach pointed out in his comment on part 1 of this post : “The latest set of Senate proposals amounts to selective skimming of the young, healthy and wealthy for the private insurance companies, and dumping the poor (Medicaid expansion) and older, predictably sicker (Medicare expansion) on the public sector. This makes the public sector more expensive.”
Under the Senate proposal uninsured and self-employed Americans under the age of 55 will buy insurance from non-profits private sector insurers. In most cases, it will be over-priced—even if they are non-profit these insurers have higher administrative cost than they government. They advertise and market; they lobby; they pay their executives handsome salaries. In most cases , the insurance won’t be not as comprehensive as it should be. Unfortunately, most non-profits are not Kaiser’s or Geisinger’s; many are very much like for-profit insurers
And The Office of Personnel Management that will be administering the program (and that now oversees the Federal Employees insurance) does not have a good track record when it comes to negotiating affordable plans that provide high-quality care. Federal employees like the insurance because the government pays such a large share of the premium. Otherwise, it is no better than the insurance offered by many large employers; in many cases, it is not as good. (Some large employers that self-insure provide excellent insurance.)
Finally, those who support the Senate proposal like to suggest that healthier 55-64- year- olds who are now buying their own insurance in the private market will switch to Medicare-for-the-Middleaged because it will be less expensive. Unfortunately, this just isn’t true.
While administrative costs push up the price of individual insurance available in the private market, many of the individual plans that the private sector sells are not as comprehensive as Medicare. As a result, when 55 to 64 year-olds buy their own insurance in the private market, they pay an average of just $4,600 a year. By contrast, the lowest estimate I have seen for Medicare for the middle-aged is $7,600, per person..
Some people may well decide to shell out more for a better, public sector plan. But keep in mind, only 25% of 55-64 year old households report joint incomes of more than $100,000. A couple who earns less just won’t able to afford roughly $15,000, plus co-pays and deductibles, for two $7,600 plans. Even for households pulling in $110,000 or $115,000, it would be a stretch.
The original public option would have created a large pool of Americans of all ages coming from many different backgrounds. More than 20 million self-employed Americans would have been eligible for the public plan. Many in that are healthy, young and relatively affluent. Under reform, the poorest of the uninsured would wind up in an expanded Medicaid program, so while the public plan would have attracted many low-income as well as middle-class households, families, it wouldn’t have included the poorest and sickest Americans. Finally, those who work for or own small businesses would have been eligible for the public plan. Again, this group represents a cross-section of society. And ultimately, the public plan would have been open to everyone.
This is how to make insurance affordable: pool the risk. And, of course, squeeze out the waste.
Because the Medicare buy-in option will be available in 2011, there won’t be much time to do that. No doubt many who profit from that waste are pleased. We seemed to have turned healthcare reform on its head, designing a plan that will serve the lobbyists well.
But in the days and weeks ahead, anything could happen. I’m not giving up.
Obviously a universally-available public plan would be the preferable option. It gets all uninsured of all ages into a single pool, and thus avoids adverse risk selection. But the so-called “moderates” in the Democratic Party have made that impossible.
Therefore, making Medicare available to older adults is a viable second choice. Your arguments about cost are off-base. The KFF issue brief, as I pointed out on my blog earlier today, points out that somewhere between 39 and 46 percent of this group qualify for the Medicaid expansion already in the bill. They don’t require new subsidies because the money earmarked for their insurance would go to Medicare instead of the states.
A large portion of the rest, because of their relative poverty (less than 300 percent of the federal poverty level in the Senate bill), will get subsidies through the exchange. Again, what’s the difference if those subsidies go to private insurers or to Medicare?
By definition, the people who might opt for Medicare Early are older, poorer and sicker. Of course insuring them costs more. The solution then is to properly risk adjust the payments from the exchange, where they would wind up if not in Medicare. The Senate bill ALLOWS discrimination for age in the exchange-offered plans. If that is the final language, claims that exchange-approved plans will be cheaper for this cohort because they will include all age groups are unfounded.
You state Medicare will cost more because it is better insurance. Don’t we want people in their late 50s and early 60s to have good insurance? Don’t forget: if they don’t want to pay more for Medicare, they can still go to the exchange for the more affordable bare-bones option. Indeed, CMS could implement all of its excellent pilot programs for using evidence-based medicine, pay for performance, bundled payments, etc. etc. in the Medicare Early program.
Finally, you claim it’s “too late” at that point to affect the long-term cost curve. That’s simply wrong. The McWilliams study claimed that people who were continuously insured between 55 and 64 experienced over $1,000 a year less in health care costs once they got into Medicare compared to people who were intermittently uninsured. The only explanation for that phenomenon is that getting to people earlier allows for better management and possibly even amelioration (prevention) of emerging chronic diseases. This is just common sense. Start treating high blood pressure and elevated blood sugar when you’re 55 instead of waiting until you’re 65 and you’ll have less heart disease, less chronic kidney disease, and less diabetes.
Indeed, if Medicare operated like a business, it would be spending its own money to go out and find those sick, uninsured 55-year-olds and paying to treat the underlying causes of their emerging chronic conditions. It’s an investment that will have major returns for years to come.
I remain agnostic rather than opposed on the question of the Medicare buy-in. Based on the proposed legislation, all of the middle-aged uninsured (with some acknowledged exceptions) will be required to buy insurance – subsidized as needed in some cases. Each individual will be able to choose either the extended Medicare or a private plan, but the comparison can’t be made on the basis of current private plans, because these will be forced to change.
The bills will require all the plans to cover neccessary medical services with a specified floor on actuarial values. This means that some cheap but inadequate private plans will be replaced by better but more expensive private plans. The 55-64 set must then choose between these and extended Medicare. If the latter is a bad deal because of cost, most individuals will purchase the cheaper private plans, but at least they would have more choice than would exist without the Medicare buy-in option. As long as the legislation requires all plans to meet minimum standards, as is already part of the legislation, and as long as no insurer can exclude an applicant, I’m not sure why individuals would be worse off than before the new option was proposed.
Merrill& Fred-
Thanks for your comments.
Merrill–
Good to hear from you.
As ou know, I have the highest respect for your blog–but on this point, I have to disagree.
First, the study you cite is looking at a cross-section of 55-64 year olds from all income levels.
Those who are continuously insured from 55-64 are, on average, the most affluent. (We know this from other reserach)
Are they healthier when they go on Medicare because they had health insurance or because they are wealthier?
Poverty is far and away the major factor affecting poor health in America.
In the U.S., the poor die six years sooner than the rich.
Poverty is highly correlated with smoking, alchoholism, drug addiction and a deadly environment. (See rates of respiratory disease in the Bronx.)
The vast majority of American adults who still smoke are poor.
In the Shattuckk lecture published in NEJM two or three years ago, Dr. Steve Schroeder offers good evidence that whether or not a person has access to health care accounts for only 10% of preventable premature deaths.
“Behaviors” associated with poverty (smoking, alcoholism, drug addiction) account for 30% of preventable premature deaths.
. Poverty is correlated with high levels of anxiety, depression and anger, and when people are anxiouis, depressed etc. they self-medicate.
Also, if you don’t have much hope of a better life (social mobility has declined in the U.S.) you don’t see much point to trying to take care of yourself.
Environment (air quality etc.) accounts for another 10% of preventable premature deaths.
Poverty is also correlated with obesity; in poor neighborhoods they are few safe places to exercise; nutirous food (fresh fruit, fish etc.) is either unavailable or very expensive. Carbs and fat are cheap and filling,a nd so this is what people eat even when they cook at home.
In poor neighborhoods public schools often don’t have gymns, gym teachers or usable playgrounds.
When the U.S. is compared to other developed countires in terms of longevity, maternal mortality etc., we fare poorly. (As you know, this is true even when you compare only white Americans to whites in other countries.)
This is because we tolerate much higher levels of poverty than any other developed country in the world. (European countires, Canada, Austarlia, NZ are largely middle-class. Our middle-class has shrunk while the share of the population that is very poor or very rich has grown.)
Particularly when it comes to children, we have a larger percentage of children livign in poverty than in any other developed country.
.Resarch shows that if a child is born into poverty and somehow, manages to get an education, goes on to get a Ph.D. and earns a good income, the average person in that group still dies sooner than the average person who grew up in an affluent household.
The damge done in early chlidhood cannot be undone.
By the time a person is 55 and poor all that healthcare can do is try to manage chronic diseases to some degree–It can’t undo years of poverty.
Basically,U.S. health care is not all that it is cracked up to be.
If we wanted to improve the health of the U.S. poulation, we would launch a war on poverty, with an emphasis on public schools k-12.
(While spending so much more on healthcare than other countires, we spend less than many on public education k-12.)
That sould do more good than all of the diagnostic testing in the world.
(We’re just beginning to reocgnize how right Gil Welch, Lisa Schwartz and Steve Woloshin were about the “epidemic of diagnosis” in the U.S. (See New York Times article.)
If Medicare went out, found poor 55-64 year olds, and treated them that would be a good thing. That’s what we should do.
But it would not save money. Those 55-64-year olds would simply live longer. They wouldnt’ be in great health–but they would survive longer. (Keep in mind, we’re talking about really poor people–a family living on less than $28,000 at age 55.. They were suffering form high blood pressure in their 30s and 40s. They’re not just starting to age; at 55 they are physically much older than an affluent 55- year old)
So healthcare is not going to make them healthy, though it could keep them going, so that they live longer. This means they would cost our medical system more.
This, of course does not mean that we shouldn’t try to treat these people–we should. The point of healthcare is better health and survival–not saving money.
But if we dont’ aggressively reform Medicare, much of the care the 55-64 year olds get on Medicare for the Middle-Aged will be a waste of money and will expose them to unnecesssary risks.
Meanwhile over-paid specialists and wasteful, inefficient hospitals are howling that they want Medicare for the Middle-Aged to pay more than Medicare rates.
The moderates who seem to be running things now (a handful of people, mainly from sparsely populated states) will probably accede to their demands.
Insofar as we continue to reward hospitals for inefficiency and errors (private insurers pay an average of 115% to 125% of what it should cost hospitals to care for patients–if they were as efficient as our most efficient medical centers–Intermountain, Geisinger, etc.) and insofar as we continue to overpay some specialists for services that provide little or no benefit to the patient we will continue to encourage unncessary, inefficient, and hazardous treatment.
Hospitals have no incentive to reduce infections and errors if they are paid handsomely for them.
The original public optoin didn’t roll out until 2013, giving us three years to reform Mmedicare. Then the legislation made it clear that the publci optoin would incorporate Medicare reforms.
It would have been big enough to negotiate reasonable fees with provideres, to insist on quality, to refuse to pay for waste and errors, to refuse to pay for treatments that put patietns at unncessary risk.
That public option would then set a high bar for better care at a lower cost. Private insurers would have to compete with that.
Under the current compromise, no one will be setting a high bar. (Even if Medicare for the Middle-aged incorporates some reforms it won’t be setting a standard in the makretplace.)
And in terms of paying for Medicare for the middle-aged, we need to have affluent, healthy younger Americans paying a larger share of teh cost.
I know the House bill called for charging older Americans twice as much– and the Seante bill was worse– but it seemd to me that, over the next three years, when people actually sat down and looked at the numbers it would become clear that older Americans wouldnt’ be able to afford such high premiums, and this is one of the things that would have to be amended.)
Finally, if you’ve ever looked at federal employee insurance you know that it is not very good. It’s expensive; many very high deductible plans, co-pays for preventive care, etc.
Making sure that people have access to “health insurance” does not mean that they have health care.
Yet that’s what we’re doing. It will turn out to be unaffordable, and will probably implode.
There was no reason to give in to a handful of moderates. The Senate plan could have passed without a public option. Then, in coference, the public option from the House plan could have been put back in the bill (with a large assist and some arm-twisting from the White House. This is why God made Rahm Emanuel and gave him to Barack Obama.)
Fred–
There is no reason to believe that the Office of Personnel Management that now oversees Federal Employees Insurnace will suddenly become a good insurance regulator.
OPM now lets insurers sell very high-deductible plans that shouldn’t even be called insurance.
These plans are expense ive– OPM has not negotiated good rates.
Even if it wanted to, it doesn’t have the experience or the knowledge to regulate insurers.
Meanwhile the non-proft insurers will be small (it looks like they will be start-ups–Kaiser, etc. will not be allowed in the Exchange) and will have little clout when negotiating with providers.
The likely result: over-priced insurance that many people can’t afford to use.
And they’l still cherry-ppick. For instance, insurers are talking about limiting the number of oncologists in their network so that cancer patients have to wait a long time to get appointments. This means fewer cancer patients sign up. Meanwhile, you offer discounts on gym memberships and attract young healthy customeres to replace them.
This is just one of dozens of examples.
If we had a public plan in the marketplace, competing with priviate insurers, it woudl set a high bar for affordable, quality care. Private plans would have to improve–or lose market share.
Under the compromise, no one will be setting high standards.
Maggie, thank you for your continued and rational approach to health care reform. I especially appreciate your noting the correlation between poverty and health status and health disparities.
I just wanted to call attention to the National Association of State Mental Health Program Directors (NASMHP)report on the health disparity for potentially the most disadvantaged group of Americans–those with severe and persistent mental illnesses. This highly stigmatized group die on average 20-25 years before the average. This is 3 to 4 times the disparity you rightly point to for Americans below the poverty level. In Oregon, while I was the state mental health AND addictions director, I had a data study performed that showed that adults enrolled at least once in our mental health and once in our addictions programs died at the average age of 44 years old–about 30 years disparity. We are working increasingly on wellness initiatives in Oregon as well as elsewhere but this is the largest health disparity I’ve heard of yet. It places persons with both a mental illness and an addictions problem (some studies show this is as many as half the people with major mental illnesses) as the equivalent in life expectancy as Afganistan and Nepal (see T.R. Reid’s book for the life expectancy figures I’m working from on this).
This would crush the economy and make us far worse than our current situation. I don’t know how my 58 year old mother is going to fork over the 7,000 / year for Medicare and as someone else pointed out the private plans are going to go through the roof to pay for pre existing conditions. To me this seems like it is heading for disaster.
Well I guess politics has gotten the better of reform. What a mess.
Time to start over with single payor.
Bob, Paul, Ed
Bob– Thanks for your comment.
There is, as you know, a high correlation between poverty and mental illness.
The stress of being poor if so important. From what I have read this is why we think that even if a poor child manages to get a very good education and income, they still have more health problems and die sooner. Also, for women, more complications during pregnancy and delivery.
Children don’t usually have the chance to self-medicate, so they just absorb all of the anxiety, fear and anger that the adults are feeling, without pain-relief.
Paul– As a civilized society, we want to provide heatlhcare for people suffering from pre-existing condtions.
To leave them out in the cold would be inhumane.
We can afford to provide treatment for diabetics, people suffer from heart disease etc, if we cut back on the unncesssary and over-priced treatments –often treatments and products that are sold to “the worried well.”
I agree that most 58-year-olds cannot afford $7800 a yaer for care. And it shouldn’t cost that much.
It’s not just that we pay for unncessary tests and treatments, we over-pay for a great many products an services.
Ed– Congress is not going to start over with single-payer.
The vast majority of people in this coutnry have employer-sponosored, and their employer pays most of the premium.
They don’t want to switch to single- payor, and since they are the majority, in a democracy, they have more votes.
But I do agree that , at the moment, the Senate bill is a mess.
Hi Maggie,
I am curious. Do Democratic Senators have staff members who read your blog and those of other sensible experts, and then report back? If not, I wonder what is an effective conduit to them for explanations such as why a compromise expansion of Medicare to wealthy 55-64 year olds makes no sense.
Richard–
Some Senate healthcare staffers do read this blog–and other very good health care blogs.
In the White House, some people read both HealthBeat and other excellent HC blogs.
But for many in D.C., politics trumps knowledge.
Even if people in powere listen to what staffers explain, political considerations may be more important.
Also, some of our legislators are not great minds–not as smart as their best staffers.. .
In recent years, American voters tended to elect people that they would “like to have a beer with.”
I’m hoping that this will change.
Hello Maggie,
With respect to the statement, “The people in this plan won’t be as sick when they turn 65 because they will have been receiving care since they were. ” With all respect to the Gooz, I don’t buy this. This flawed reasoning resembles the argument that preventive medicine saves money. Physicians and hospitals are rightly concerned about expanding Medicare as the reimbursement for these patients is so low. We rely upon private payers to subsidize our Madicare population. Expanding Medicare would drive hospitals and many physician practices out of business, or would force them to become employed physicians of corporate medical institutions. Finally, Medicare has no effective cost controls and is financially unsustainable. Why, then, would we expand on a model that is aching for reform? http://www.MDWhistleblower.blogspot.com
A specific point raised by Michael Kirsch requires a response. It has been claimed that preventive care would not save money, but the claim is invalid if one considers all the costs involved. Three points deserve mention:
1. Not all preventive care is equally cost effective. Flu vaccination is an inexpensive means of saving substantial expenditures in health costs, whereas it would be exorbitantly expensive to offer brand name statin drugs to the general population, even if a net medical benefit could be demonstrated for individuals at normal cardiovscular risk (I mention this because the possibility of a very slight but real benefit has not been excluded by current data). In essence, judiciously chosen preventive measures can save far more in treatment expenses than the prevention itself.
2. Even if on average, the cost of prevention is not significantly lower than the costs of treatment that would have been incurred in the absence of prevention, prevention is still a very substantial cost saver overall. The extra savings do not reside within the healthcare system itself, but rather in the ability of prevention to reduce lost worker productivity resulting from preventable illness. These savings are probably in the range of many tens of billions to more than one hundred billion dollars annually. Some quantitation is available at
http://www.commonwealthfund.org/usr_doc/856_Davis_hlt_productivity_USworkers.pdf
3. Finally, of course, prevention prevents something beyond the expenditure of money – it prevents pain, suffering, and premature death. The human tragedies are hard to factor into the cost benefit analysis, but they shouldn’t be neglected if “cost” is understood to mean more than dollars spent.
As someone, who works for a small business, I completely agree. I really feel this willjust contribute to the trend you mentioned of the elimination of the middle class.
Fred–
Merrill wqas talking about uninsured 55-64 year olds.
These are people with an average joint household income of around $27,000 . . .in other words, they are poor–and in most cases, they’ve been poor for 55 to 64 years.
My point was simply that heatlchare can not make a poor 55-year-old smoker healthy. It probably won’t make him more productive (chances are he is unemployed.)
Poverty takes a toll on the body and mind –and leads to self-medication (drinking, smoking, drug addiciton.)
Unless you give the poor 55-year-old a better life, chances are you are not going to persuade him to stop drinking. (While smoking cessation clinics have had real success with smokers, we still really don’t know how to help alcoholics. AA helps some–if they buy into the philosophy and are moved by it. Even then, a great many fall off the wagon.
So while what you say about preventive care for general populaiton is true, poor 55-64 year olds are a separate case.