The Cost of At-Cost Medicare Buy-In (vs. High-Risk Pools)

Rep. Alan Grayson, a champion for health reform, has introduced in the House HR 4789, the "Medicare You Can Buy Into Act."  The concept behind this act is to let anyone buy into Medicare "at-cost."  I think that is a brilliant idea to present competition to the private health insurance industry - and to incentivize them not to treat their customers like cattle, lest they all start migrating to Medicare.

Some, however, has latched onto this bill as the holy grail of health reform.  Some have even suggested it as the solution to the high costs of the the high-risk pools currently being implemented under the Patient Protection and Affordable Care Act.  Is it?  While I am always in favor of expanding any public health insurance program, we ought to be careful about over-promising what a Medicare buy-in bill could really deliver.  This post is an attempt to compare the costs on an individual of a Medicare buy-in vs. that of the high-risk pools.

We all know that Medicare has a far lower overhead than private insurance companies, and that means that if you are buying into Medicare, you are not paying for your insurance company to run ad blitz on your TV, or for your insurance executives to take home insane amounts of money.

All told, however, Medicare is not cheap.  As we enact reforms, we must take stock of what those really mean for us.  In 2008, total Medicare expenditure (that's federal government expenditure, plus the cost sharing expenditures made by individuals enrolled in Medicare) was $469.2 billion.  That same year, Medicare covered about 45 million Americans.  So in bare-knuckle mathematical terms, in 2008, Medicare cost $10,427 per person covered, or $869 per covered individual per month.  Once again, keep in mind that this is total expenditure, not premiums.

In fact, the Medicare cost premium and cost-sharing model reflects this cost.  Part A of Medicare is generally covered by the government for the elderly because they have paid into the program all their lives.  However, under a buy-in situation, one would have to pay the Medicare Parts A, B, and D premiums, all out of pocket. Here are the premiums for Parts A and B for 2010:
  • Medicare Part A (hospital insurance) monthly premium: $461
  • Medicare Part B (medical insurance) monthly premium: $96.40
Are those all the costs?  No, those are just the premiums.  What other costs do you pay out of pocket for at-cost Medicare?
For each benefit period you pay:
  • A total of $1,100 for a hospital stay of 1-60 days.
  • $275 per day for days 61-90 of a hospital stay.
  • $550 per day for days 91-150 of a hospital stay (Lifetime Reserve Days).
  • All costs for each day beyond 150 days
Skilled Nursing Facility Coinsurance
  • $137.50 per day for days 21 through 100 each benefit period.
Part B: (covers Medicare eligible physician services, outpatient hospital services, certain home health services, durable medical equipment)
  • $155.00 per year. (Note: You pay 20% of the Medicare-approved amount for services after you meet the $155.00 deductible.) [Author's Note: These rates are Medicare rates and so are generally somewhat less than what your insurance company pays the hospital/provider.]
What about Medicare Part D?

The Kaiser Family Foundation estimates the average premium for Medicare Part D (prescription drug coverage) in 2009 to be $37.29.  KFF notes that nearly one in four Part D participants had premiums of $70 or more - which you can bet the amount would be closer to for people with high-risk/uninsurable conditions. For ease of calculation, we will assume the rate holds for this year.  What are your out-of-pocket costs after the premium?
  • $310 deductible
  • "Donut hole" for prescription drug costs between $2,830 and $4,550.
What about the closing of the Medicare Part D "donut hole" gap that start with a $250 rebate this year, you say.  Not a possibility.  Grayson's bill specifically exempts buy-in customers from cost-sharing assistance.
An individual enrolled under this part pursuant to this section shall not be treated as enrolled under this part (or any other part of this title) for purposes of obtaining medical assistance for medicare cost-sharing
Let's recap.  Under a Medicare buy-in, someone who is buying in would pay a total of $594.69, or nearly $600 a month in premiums alone if you are lucky and don't need a lot of prescription drug coverage.  If you need the high end drug coverage, you could be paying nearly $630 or more.  Plus you would be paying an out-of-pocket of $1,100 for Part A, $155 for Part B, and at least $310 for Part D, considering the best case scenarios.  That's a total of $1,565 in out-of-pocket under the best case scenario.  In a scenario where you have to pay the full cost of the "donut hole" or have to stay in the hospital longer, your out-of-pocket can easily exceed $3,000.

Let's compare that to a high-risk pool plan in a fairly expensive state, California.  Here it is:
Premium: $575 for a 50 year old subscriber in San Francisco
Deductible: $1,500
Out of Pocket Limit: $2,500
Seems pretty much in-line with Medicare, if not a little cheaper, depending on your condition.

Here is the real kicker - there is no need to knock the high-risk pool that is going to be a lifeline for many people in order to advance Greyson's Medicare buy-in, that will also be lifesaving and present the private industry with competition.  There is no reason to knock current reforms in order to implement further ones.  And the attitude of trying to do take away from the massive reform we achieved earlier this year is in fact counterproductive to achieving more reform in the future.

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