The Bipartisan ‘Single Payer’ Solution: Medicare Advantage Premium Support For All

In my last Health Affairs Blog post, I outlined a potentially bipartisan four-step plan to move past the American Health Care Act’s (AHCA’s) disastrous framework toward a more stable, less expensive health care system. For those seeking incremental, near-term solutions, I hope those recommendations provide helpful guidance. But the AHCA’s reckless drive through the US House of Representatives has taught us something about the current status of health care politics and may have opened the window to more significant, ultimately more successful, reforms. To put it mildly, the public is essentially fed up with debating how to realign the fragmented elements of our Rube Goldbergian system. Its machinations are too complex, its politics too fickle, and its rent is too damn high for the care we are getting. Where do we turn, then? More complexity? Cutting millions from coverage and shifting more costs to working families? With those options likely to be rejected, as conservative heavyweight Charles Krauthammer recently asserted, we may be heading “inexorably” toward a single-payer system. Poll after poll has in fact shown that a majority of Americans support such an approach. Most recently, an Economist/YouGov surveyfound that 60 percent of Americans support expanding Medicare to cover everyone, with only 23 percent opposed. If the AHCA defies odds and is enacted, this will only become exponentially truer as its impacts are felt. But, you are quick to add, there are a variety of deep-seated concerns with a single-payer approach that have kept it out of mainstream political discourse so far. That’s undoubtedly true. They include: It will necessitate massive tax increases; it will cut reimbursement for services to unsustainably low rates; it will be lower quality than the employer-sponsored coverage most Americans currently have; it will consolidate power into the hands of a small number of bureaucrats; etc., etc. My goal with this post is to demonstrate that a “unified” (punchline: It wouldn’t truly be single payer…), market-driven, federally regulated, privately delivered system need not possess any of these objectionable attributes. In fact, the parameters of such a system are all but staring us right in the face. I call it: Medicare Advantage Premium Support for All (MAPSA). While any flavor of single payer may be the last thing that comes to mind when contemplating bipartisan initiatives, just as the far left and far right share some libertarian (and other) commonalities, we may have indeed finally come full circle in this tiresome, so-far-futile debate. By combining two shots of conservative orthodoxy with one overflowing progressive one, and stirring slowly, it is not at all far-fetched to envision an endgame cocktail for our health care system that covers everyone, decreases costs, and can pass Congress. Cheers.

FINANCING

The most important objection for any single-payer proposal to overcome is that it is so expensive it will require unpalatable tax increases. This has been raised invariably on the right and even on the left, including by columnist Paul Krugman in his notorious about-face on the issue. But, folks, our health care system is already unsustainably expensive. There is more than enough money already being spent on health care to provide affordable, high-quality coverage to every American, if we allocate the resources more efficiently. To prove this point, I’m going to present you with some very barroom-napkin math that, nonetheless, relies on well-established data regarding health care spending in the United States, drawing from the most recent National Health Expenditures report from 2015, unless otherwise noted. In that year, the United States spent more than $3.2 trillion on health care, almost $10,000 per resident. If we remove Medicare (which is after all going to be the nucleus of the new system), that leaves more than $2.5 trillion. The components of that spending come from federal, state, and local governments (primarily Medicaid, Affordable Care Act [ACA] subsidies, coverage for federal employees, veterans, military families, and so forth). It also comes from employers, the tax exemptions they are afforded for it, and households—you and me. If you remove employer and household spending from the equation for the moment, which means both elements would contribute nothing (you’re welcome), that leaves about $1.5 trillion or $5,371 per person available to fund the new system. Now, Medicare spent about $11,642 per person in 2015, but keep in mind that these beneficiaries are aged or disabled, much less healthy, and more expensive to care for than the average American, which includes children, young invincibles, and so forth. If we take health plans and actuaries at their word, an “age rating band” (or ratio between what we charge the oldest and youngest members of the insurance pool) of 5:1 is appropriate. This is also, I’d note, the ratio advanced by Republicans in the AHCA. This suggests that $6,985 is the average cost of coverage if we use Medicare spending as the benchmark (that is, calculating premiums at a 3:1 ratio if 5:1 is Medicare’s $11,642). That may be too high, because for this exercise we are actually excluding current Medicare beneficiaries, so the fifth quintile of the rest of the population would actually cost less, on average, to cover. Another, perhaps better, benchmark, is the average cost of a gold-level plan in the individual market, which, in 2017, was $6,456 (before any applicable tax credit). I am using the gold tier as an illustration because, as I will explain later, it most closely resembles the Medicare benefit, primarily because such plans have an actuarial value of approximately 80 percent. So, going back to our math equation, we’ve got $5,371 in all-government spending on health care to allocate to an average plan cost of $6,456. That leaves $1,085 as the average annual premium contribution with anticipated cost sharing of 20 percent, or $1,291. Per capita household spending would thus be $2,376, which is cheaper than the current average rate of $2,705. If we wanted to increase household savings further, a maintenance of effort policy, or obligation to continue some portion of their existing health care spending, could be imposed on employers who will see their profits rise substantially when health care costs are dropped from their ledgers. I’m not recommending this, but just to further demonstrate the abundance of dollars currently in the system, if you required employers to maintain 100 percent of that spending on health care by paying in to this system, there would be more than enough funding to cover all anticipated household costs (premiums and cost sharing). So, in summary, no new taxes, a $600-plus billion windfall for businesses, and about $350 in savings per person—and everyone is covered. This does not count the substantial efficiencies that the health care system would undoubtedly gain by economizing it in this fashion. (While the exact amount is disputed, even conservative analysis shows Medicare spends about 10 percent less on administrative costs than commercial coverage, yielding more than $200 billion in savings from that alone.)

BENEFIT DESIGN

Okay, no more math for now. What kind of coverage do we get out of this deal? This is the part where I’m going to genuflect, with some pain, to House Speaker Paul Ryan and all others of Randian descent. Bear with me, progressives, we need to satisfy the ideological urges across the spectrum if we’re going to have a prayer of getting this done. At the highest level, the per capita spending identified above will be delivered to households as a tax credit, with which they can purchase either a Medicare Advantage plan (the existing commercial coverage option already chosen by more than 30 percent of Medicare beneficiaries) or traditional Medicare, creating high-stakes competition among those carriers. You might call traditional Medicare the “public option,” but giving consumers this choice between federally and commercially administered Medicare is exactly what Speaker Ryan’s “A Better Way” plan would do. If you don’t think his plan is market-based, take it up with him. I’m pretty sure it is. Careful attention would need to be paid to indexing household tax credits to ensure costs are not shifted to them over time. But a consumer-driven (and tightly regulated, transparent) market such as this should help drive down costs even beyond administrative savings. We will be able to afford to inflate the tax credit over time in a way that keeps up with actual costs. Meanwhile, consumers who find lower-cost options can keep the difference. Those who want expanded benefits can pay more. If you want a deeper (but still digestible) dive on Medicare benefit design, check out this Congressional Research Service report. Basically, Medicare covers inpatient and post-acute care services under so-called Part A, which everyone who has paid Medicare payroll taxes can receive without an additional premium, and outpatient services under Part B, which currently requires an annual premium of $1,608. Medicare Advantage, as delivered by commercial insurers, combines all of these services and may also include prescription drug coverage, with flexibility to add benefits or reduce premiums and cost sharing if savings can be identified, as they often are. For fee-for-service enrollees, drug coverage can be obtained separately via private insurers or pharmacy benefit managers under Part D, with an average premium of $408. This is not to say that the Medicare benefit itself could not be reformed. Currently, there is no out-of-pocket cap on costs, as there are for ACA-regulated plans. Others have suggested that implementing uniform cost sharing and deductibles across Medicare Parts A and B would simplify the benefit, potentially encouraging more prudent spending. This would also make the benefit more closely resemble the ACA’s benchmark gold plan currently being sold in the individual commercial market. Notably, while Medicare has all of the consumer protections the public has come to expect from the ACA (guaranteed coverage, ban on preexisting condition exclusions, and so forth), it does not have an individual mandate per se. Part A is funded by a mandatory payroll tax, which essentially makes participation in it obligatory. There are also late enrollment penalties for Part B and Part D. Perhaps in conjunction with default enrollment, these incentives could be imposed to ensure essentially universal participation without a formal mandate. If we apply this benefit structure to everyone nationwide, a host of other considerations must be taken into account, for sure. All of this benefit discussion and financing analysis relates to the average consumer. For example, children covered by Medicaid have access to some evidence-based benefits that are specifically tailored to their needs. We have to make sure that children and other vulnerable populations do not see the value of their coverage decline. Additional considerations would of course need to be taken into account, including varying the tax credit and cost-sharing expectations by income and region, as Medicare and the existing gold-plan regime both currently do.

REIMBURSEMENT

This one is the real kicker for most health care stakeholders, rivaling cost concerns as the top reason single payer has never had a real chance of enactment. But I think there’s a straightforward response. All of the numbers identified above relate to national health care spending across all payers—government, commercial, and so forth. So, the starting point for considering how much will be paid for health care services under MAPSA is the weighted average of the rates all of these various payers currently provide; that is, what providers and other stakeholders currently receive. So a key weakness of single payer, under this approach, becomes one of its greatest strengths. Reimbursement for health care services remains strong but the cross-subsidizing acrobatics that providers currently perform to balance their finances would go away. For example, commercial rates are hiked, often stratospherically, to compensate for typically insufficient Medicaid reimbursement. There are access (and moral) implications here too: Historical Medicaid enrollees will now be able to see the same doctors and go to all of the same facilities as those who currently have generous employer plans. There will no longer be any perverse incentive for providers to turn them away. Finally, if you’re like me, your provider friends (and maybe spouses…) have complained interminably about their frustration with the current multipayer system. This is not just an issue with varying claims requirements and payment delays; it’s about caregivers being pulled in several different directions by multiple quality reporting and value-based purchasing programs that can often incentivize conflicting behaviors and clinical standards. While the Medicare Advantage market would need to be expanded to ensure adequate consumer choice and plan competition, having all payers participate in a single, unified program will substantially alleviate this redundancy and frustration in our current system. Now, please stop asking me to fill out a paper-based intake form every time I come see you.

IMPLEMENTATION

This is another admittedly tricky element of MAPSA that warrants much further extrapolation, but, again, my goal here is only to persuade you that it is feasible. To move away from the various coverage programs currently in place, we might consider a protracted, step-wise approach. We are talking about almost 20 percent of our economy. That’s not an excuse for inaction, but it is a cause for care. Five or so years after enactment, coverage from the narrower, federally funded programs such as the Federal Employees Health Benefits Program, Veterans Health, and TRICARE, could be transitioned to the new commercially driven, federally backed, MAPSA. Three or more years later, Medicaid and individual commercial insurance market enrollees would join. Last of all would be employer-sponsored insurance, where coverage is the most stable (and privately financed). Believe me, I realize it’s easier to type this up on a computer than it is to actually pull it off. Every syllable above warrants much deeper inquiry, deconstruction, and reformulation. I said I wanted to convince you this is feasible, but I also want us to acknowledge how complicated it is. It cannot be done in one fell swoop of Bernie Sanders’ wagging finger; nor should it be casually dismissed as an economic and budgetary disaster. It doesn’t have to be either of those. Rather, I’m convinced that some thoughtful, non-ideological citizens can come together to craft a market-based, government-backed system that provides lower cost, universal coverage for consumers while protecting the livelihood and robust economic contributions of health care companies and providers. Who’s with me?