• What’s the best model for a remade Medicare?

    It’s a new day, and so I have a new post on Ezra Klein’s blog, where Aaron and I are posting working our tails off (happily) all week. Though you’ll have seen it there first, here it is.

    Responding to my post about the GOP’s Medicare voucher plan and employer-sponsored coverageIgor Volsky (at the freshly redesigned ThinkProgress site) agrees with me and adds:

    I would also argue that employees are currently much better off than seniors who become eligible for Ryan’s vouchers. Even as their share is increasing, employees aren’t going up against insurers all by themselves. They’re part of a group health care plan which — if the employer is large enough — can help defray increases, spread risk and cost, and shield the policy holder from other insidious practices that insurers often deploy against the individual consumer.

    I agree with Igor on the risk pooling function of employers. However, the employer-based system is still not one we should seek to emulate for three reasons:

    (1) By mediating insurance decisions, employers constrain choice, and that’s not without a loss. In an NBER paper last year, Dafny, Ho and Varela estimated that loss of choice to be worth about $2,000 to a family of four.

    (2) Risk adjustment in an exchange-based (or managed competition style) system makes the pool effectively larger. It’s true that risk adjustment across multiple plans is imperfect. A single plan creates a single pool and there’s no beating that from a risk-pooling perspective. But it also removes all choice. (Back to point 1.)

    (3) However, it should be noted that there is worker sorting, too. That is, individuals choose or stay with employers for the health insurance offered (“job lock” and related “entrepreneurship lock”). Thus, an employer-based pool might not reflect the risk of the population but rather the risk of those who choose to work for (or remain working for) that employer.

    The bottom line is that the GOP’s plan for Medicare is far from ideal. In many ways it’s a step backward, not forward. However, the employer-based system also is far from ideal. In many ways we should be stepping away from that, too.

    The ACA exchanges are closer to the ideal for both the Medicare- and the working-age populations, with one major limitation. They lack a public option. Colleagues Aaron Carroll, Steve Pizer and I have echoedthe suggestion of other health policy experts (such as Robert Coulam, Roger Feldman and Bryan Dowd) to retain the public option in Medicare and make it compete with private plans on a level playing field. Why not do the same for the ACA’s exchanges?

    This isn’t just our idea either. Health policy expert Gail Wilensky, who ran Medicare under President George H.W. Bush, also suggests this approach. (I’ll post more about this idea, known as competitive bidding, later.)

    We shouldn’t accept current Medicare as the ideal. Nor should we completely dismantle it or remake it in the form of employer-sponsored plans. The ACA’s exchanges offer a sound model, though one that can be improved upon.

    • How do current-law ACA exchanges differ from the Medicare exchanges envisioned in the Ryan plan?

    • Employer based plans have a fatal flaw. If the employee becomes ill he/she will eventually lose coverage. But you say ” if they can’t work, they will get coverage from COBRA (Consolidated Omnibus Budget Reconciliation Act of 1985).” COBRA coverage, however, is much more expensive than the employer based plan and is often unaffordable to average and below income employees. In any case, after 18 months COBRA ends and the sick former employee is forced on to the individual market where pricing for sick people is most often prohibitive and/or coverage not at all offered.

      It’s sort of like having an elderly population with high prevalence of illness being forced on the open (individual) insurance market. (Ryan plan) Great for the insurers, not for the patient.

      The problem with our system is that it is not a health care system. Rather it is a system designed to maximize income for providers, insurers, patent holders, suppliers, etc.


    • It can’t be done but it would be desirable to replace Medicare and Medicaid with something that makes sense. No rational person would create Medicare and Medicaid if they were starting from scratch today.

      Here is my proposal for such:


      The state would provide insurance to all Americans but the annual deductible would be equal to the family’s trailing year adjusted income minus the poverty line income (say $25,000 for a family of 4) + $300. So a family of 4 with a trailing year adjusted income of $30,000 would have a deductible of $5,300. A family of 4 with a trailing year adjusted income of $80,000 would have a deductible of $55,300. Middle class and rich people could fill the gap with private supplemental insurance but this should be full taxed. This would encourage the middle class and rich, who are generally capable people, to demand prices from medical providers and might force down costs. They could opt to pay for most health-care out of pocket while the poor often less capable would be protected.