Estimating the Effects of a
Medicare Buy-In
Buy In Program
Timothy Waidmann
The Urban Institute
Jack Hadley
George Mason University
Joel Ruhter
The Urban Institute
URBAN INSTITUTE
Motivation
• Insurance coverage prior to Medicare entitlement
matters for health and health care spending
(McWilliams et al 2007; Hadley & Waidmann,
Waidmann 2006)
• Pre-reform: 10 – 15% uninsured
• Even
E
post-reform:
t f
IIncreases in
i early
l retirement,
ti
t
decreases in employer sponsored retiree coverage,
growing costs overall, still a high
high-risk
risk group
• Buy-in as a limited public option?
• Past work has not considered potential future
Medicare savings from prior universal coverage.
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One approach: Medicare Buy-in
Buy in for
the near-elderlyy
• Several proposals, both as stand-alone programs and as
part of reform debate
debate.
• Medicare’s advantages over private options
–
–
–
–
Relatively low administrative costs
Pooling risks broadly
Market ppower in keeping
p g costs down
Could relieve risk pools in exchanges, where age rating is limited.
• Advantage over new public program: Established program,
including a buy-in mechanism
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Our approach to modeling MBI
• Data: MEPS-HC 2002-2004
– G
Generate
t actuarially
t i ll fair,
f i age-rated
t d premium
i
schedule
h d l
for plan equivalent to average private plan (Parts
A,B,D,Medigap)
, , ,
g p)
– Estimate private premiums for the privately insured
• Currentlyy insured free to choose MBI
– Develop choice rules to estimate who switches
• Assume individual mandate,, pproviding
g subsidies
for low-income (though only in MBI)
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Premium Models
Medicare Buyin
Private
• Model: 3rd party
spending=f(age,insurance)
– Uninsured and privately
i
insured,
d 19-64
19 64 & 0-18
0 18
• Predict spending for fully
insured person by age
• Add 5% load
• Total over HIU
• Subsidies up to 300%FPL
(Less generous than PPACA)
• Model: 3rd party
spending=f(health,
di
f(h l h
demographics, firm size)
• Calculate schedule of predicted
spending by HIU size, firm
size from predicted values
within cells
• Add load by firm size (40%
down to 8%)
• Add variance
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Choice Rules
• Whole HIU moves together
• Consider premium + OOP costs (also
predicted)
• Consider FULL private premium
• Bigger cost differentials lead to more
switching (
(=-2.0)
2.0)
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Who chooses MBI over Private?
80%
Age-based
Flat
70%
60%
50%
40%
30%
20%
10%
0%
50
51
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52
53
54
55
56
57
58
59
60
61
62
63
64
Composition of MBI Enrollment,
Enrollment by
income & p
prior insurance status
Uninsured,
<300FPL
(6.5 million)
Insured, >300FPL
(41.6 million)
Insured, <300FPL
(9.9 million)
Uninsured,
>300FPL
(4 0 million)
(4.0
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The effect on private insurance
pool
• Even though predicted enrollees are
concentrated at the young end of eligible
age
g range,
g , still more expensive
p
than average
g
in private pool
• 7% red
reduction
ction in average
a erage expenditures
e pendit res
among privately insured
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Aggregate impacts
• Counting changes in tax expenditures and
revenue, subsidy
b id costs, premium
i
revenue, net
annual increase in government expenditure of $1620 bbn. (over
(
pre-reform
f
bbaseline)
li )
• On per-uninsured basis, $1,524
• Trade-off between current tax-subsidy of private
g
income)) and direct subisdyy of
insurance ((higher
premiums (lower income).
• Underwriting loss in MBI
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Alternate MBI parameters
• Exclude employees of largest firms (>500)
• Higher load under regulated private market (15%
v 5%)
• Reduced subsidies
• Alternative assumption about switching behavior
• All result in lower enrollment/cost and higher
individual expenditure
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Summary
• A subsidized MBI option could cover a high-risk
group off uninsured
i
d & also
l attract lots
l off privately
i
l
insured without subsidy
• Could improve private risk pool
• Tax revenues could offset subsidy
y ppayments
y
(redistributive)
• Likely underwriting loss – could rebalance
rebalance, but
there is a tradeoff with subsidy payments
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Policy Implications for a future
public option
• If affordable exchange plans do not emerge
– Post-reform, a voucher system and subsidies
would be important to attracting enrollees.
– Potentially favorable effect on private risk pool,
especially under PPACA age rating rules
• These results assume no exertion of market
power by public payer, likely an important
source of savings.
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