In this series on options for universal coverage, we explore elements of various reform proposals and evaluate their potential impact. Rather than examining complete proposals, we highlight specific policy elements that appear in one or more such proposals. The three we focus on in this series are:
- Part 1 – Eliminating Medicare Advantage (May 14, 2020)
- Expanding Medicare eligibility to all vs. some individuals (this post)
- Increasing Medicare benefits
The Uninsured and the Underinsured – Why Expand?
Perhaps one of the most fundamental flaws of the US health care system is that tens of millions of people go either uninsured or underinsured each year. The ACA led to a significant reduction in uninsured individuals, but many of those individuals are now underinsured. Additionally, the uninsured rate has been rising again recently, even before the COVID-19 outbreak.
Uninsured individuals are less likely to have a regular source of care, less likely to use preventive care, and more likely to have financial problems related to access or payment for care than individuals with insurance. Underinsured individuals – including those with high out-of-pocket burdens and gaps in coverage – face similar challenges.
Interestingly, the uninsured tend to have fewer out-of-pocket expenditures than their covered counterparts despite being theoretically responsible for more (all) of the cost of any care they receive. This is partially because the uninsured have less access and utilization, but also because of uncompensated care.
Uncompensated care accounts for 61% of medical costs incurred by people without insurance. Hospitals, emergency departments and, ultimately, taxpayers absorb those costs. Closing the coverage gap thus reduces financial burden that extends beyond uninsured individuals.
Options for Extending Medicare Eligibility
Extending Eligibility to All
One highly-publicized proposal for getting the US to universal coverage is an expansion of the Medicare benefit to all Americans (i.e., “Medicare for All”). Although the details vary, the basic premise is that all Americans would receive health insurance coverage from Medicare or some other publicly funded benefit.
This would have massive implications for beneficiaries as well as providers and payers. An expanded Medicare would result in a substantial increase in the coverage rate of Americans. One recent study estimated that such an expansion would lead to modest increases in total national health care spending but significant decreases in out-of-pocket spending for newly covered beneficiaries. It could also increase demand for medical services by newly covered beneficiaries, which would increase government spending and could have implications for provider capacity.
Extending Eligibility to All Who Want It
A key consideration in any expansion of Medicare is whether it would entail automatic enrollment or merely access or the ability to buy in (i.e., a public option). The public option is an appealing alternative to consumers seeking choice who like their current coverage. However, the pattern of selection into the public option is hard to predict and could have important implications. Those who can afford private insurance or receive it from their employers may choose that insurance over Medicare, especially if it is more generous. This could make it more difficult to fund the Medicare expansion.
On the other hand, it is possible that many individuals and families would choose the new public option over their current plan. People with public insurance tend to be more satisfied with the care they receive than those with private insurance. If consumer choice does indeed skew toward a public benefit, employers and health plans may reduce or eliminate their coverage offerings. The long-term outlook could be similar to extending Medicare eligibility to “all”.
Extending Eligibility to the Near-Elderly
An alternative to a full expansion would be to expand only to specific higher-need populations. One popular idea is to reduce the age threshold for Medicare eligibility. Covering the elderly was intended to insulate both beneficiaries and the larger risk pool from the increased costliness of their health care utilization. Those who are “near-elderly” (less than but close to age 65, the current eligibility age) also have above-average expenses. Although this age group is less likely than younger adults to be uninsured, they may be more likely to be underinsured, given their higher health risk. Still, evidence suggests that individuals aged 55 to 64 would generally not buy in to Medicare unless it were heavily subsidized.
Subsidizing Medicare for near-elderly individuals could be worthwhile if it would lower cost and premiums for other individuals who remain in the private markets. However, one recent study has suggested that removing the near-elderly from the individual market could actually increase premiums for the remaining enrollees. This is because of age rating and the fact that the near-elderly in the individual market tend to be relatively healthy for their age.
Could Universal Coverage Really Be Universal?
It is important to note that even a complete expansion of Medicare (to “all”) might not necessarily result in universal coverage. A significant fraction of individuals eligible for Medicaid, somewhere between 20% and 50% nationwide, are unenrolled. Among other things, partial take-up of Medicaid may be a result of access barriers, documentation requirements, or lack of awareness. Unlike Medicare, there are no financial penalties for delaying Medicaid enrollment. Enrollment rates for Medicare are much higher than Medicaid, at around 99% for Medicare Part A and 96% for Medicare Part B, but still not quite universal. It is unclear what take-up of an expanded Medicare might be, but it could be significantly lower than 96% if the expansion population includes individuals similar to those currently eligible for Medicaid.
Weighing the Options for Universal Coverage
An expanded Medicare of any sort would result in a substantial increase in the coverage rate of Americans. Although it may not reach everyone, it could come close. A full Medicare expansion and a public Medicare option would likely have similar long-term implications for insurance coverage but would have different implications for public finance and private insurance markets. A full Medicare expansion would be more costly for the government, while a public Medicare option would allow some of that cost to be shared with private insurers.
In contrast, a targeted expansion to the near-elderly would reach fewer people but could offer a middle-ground for policymakers wary of a full expansion. However, careful attention should be paid to the likely impact on costs for the remainder of the individual and employer markets.
Regardless of who eligibility is expanded to and how, another important consideration is exactly what coverage will be expanded. In our next post we will explore the implications of expanding the financial generosity of current Medicare coverage.
Benjamin Silver
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Brett Lissenden