The 55 Buy In Option

Medicare for Age 55

In an article published by the Wall Street Journal, Janet Adamy writes about a proposed medicare bill saying, “Under the new Medicare plan, consumers ages 55 to 64 would for the first time be allowed to buy into the federal program for the elderly, starting as soon as 2011. Congressional aides estimate that two million to three million people would participate.”

The element of this bill that is most interesting is not the creation of the NFP private insurance company overseen by the federal Office of Personnel Management.

It is the idea of letting folks over 55 years old “buy in” to the Medicare program.

1. It “creates” a public option for the highest healthcare utilizers outside of current Medicare/Medicaid enrollees.
2. It seriously curtails the “high risk” pool for private health insurers today allowing them to keep rates down for the under 55 population.
3. It cuts reimbursements to doctors, hospitals and other providers by giving the 55-65 crowd Medicare rates (typically recognized as the low cost payor in the market).
4. It allows the government to underwrite the failing Medicare program projected to bankrupt in 20XX.

By opening Medicare up to the 55 and up group, the government is essentially extending it’s current “public option” in the form of Medicare down to the 55 and up age bracket. It’s not a full public option, but it is kind of like letting your neighbor move his fenceline onto 20% of your property. Some folks are going to be happy. Some folks are not. So let’s look at all of the players and see how it might shake out.

Insurers should be somewhat happy. But it’s a double edged sword. Gone are some of their high dollar utilizers who are subsidized by younger healthier folks buying into the plan. That’s lower expense, but it’s also less income which may not help the balance sheets of those insurers. And it’s also less buying power and therefore potentially higher rates for the younger healthier folks left on their rolls – but those higher rates could help bring the revenue numbers back up. Obviously, there will be an equilibrium to be achieved.

Providers (docs, hospitals, pharmacies, etc.) will be generally annoyed. A sizable portion of their “best” recurring patients could move to the over 55 plan and suddenly start paying reimbursements that are in line with the low cost payor in the market – Medicare. However, they may find that a suitable tradeoff in exchange for more predictable payment. At any rate, they won’t lose any revenue, since they will likely raise rates on the under 55 crowd and the private insurers who lost volume buying power with the exit of the over-55s. Like insurers, providers will be searching for an equilibrium.

Patients 55-65 may be relieved because they have an option for catastrophic incidents. They may be less than thrilled when they discover that it is harder to find a physician willing to see them since they are part of the Medicare payment group now. The devil is in the details, but I’m willing to bet, if you have children still eligible for healthcare, you won’t be taking the 55 year old buy in option. And it will be interesting to see how we take into account the over 55’s still throwing off offspring. It would seem that the 55 buy in option is going to be less widely adopted than one might think.

Patients under 55 may be relived because the older and generally healthcare-needier folks they’ve been underwriting will be out of the mix. That means lower premiums. But remember, there will be some cost shifting to the under 55 crowd as a result of a lack of buying power on their insurer AND because the providers will want to make up the lost income somewhere and it will not be through government controlled Medicare rate.

Patients over 65 – oh you forgot about them didn’t you? They are going to be pissed when they realize the impact. Sure AARP will support it. It will drive more members for them. In fact with increased buying power, Medicare rates could even go down more. But the over 65 crowd is going to find it even more difficult to get in to see a physician because all these 55-65 year olds just got dumped in and want to see the handful of docs that were willing to take the low cost Medicare reimbursement. And people over 65 generally are not real wild about change in any form, so expect them to be pretty angry.

Government should be relived to get this monkey off of their back. But it does mean that the gorilla on their back in the form of a Medicare program projected to bankrupt in 20XX just went from 800 pounds to 1,000 pounds because they just will not get the budgeting right.

Taxpayers should be wary. Very wary. Sure, we’ll breath a sigh of relief if the whole healthcare debate is finally coming to a conclusion and we are getting reforms that disallow pre-existing conditions and provide other basic consumer rights. But be prepared to get the wind knocked out of you, since no one with any historical perspective on the government’s abilities in terms of controlling costs will entertain the notion that this will be budgeted properly – think, more taxes to cover this coming soon.

May you live in interesting times.