Medicare 4 All Public Programs

For the next round of insurance reform, let's try something that can win broad support

In slimming down the Build Back Better plan to please Sinemanchin, the White House jettisoned negotiating most drug prices, stripped out a new dental and vision benefit in Medicare, and bypassed Medicaid to expand health coverage for uninsured, low-income workers.

The New York Times reported on Tuesday the proposed legislation now relies on insurance plans sold on the exchanges to cover the 4.4 million uninsured people living in the 12 Republican-run states that failed to expand Medicaid under the Affordable Care Act. The poor people “buying” the plans will have zero premiums, co-pays, and deductibles. Since this will cost more money than expanding Medicaid in those states (private insurance pays providers more than Medicaid), funding only runs through 2025.

State legislatures and governors in those states remain deaf to the pleas of hardworking people who earn less than 138% of the poverty level. We should never forget these impoverished workers have no health insurance because their employers fail to provide coverage. Most of them live in the south and southwest, where over 60% of the uninsured who will benefit from this latest twist in extending coverage are African American and Hispanic.

This is not a solution for the larger problem of providing coverage for the uninsured. There will still be nearly 25 million people without coverage should this latest compromise pass.

Nor will this latest iteration of the bill fix the ills of the broader Medicaid program, whose existing structure and uneven expansion leads to vast regional inequities. Medicaid is by far the most unfair and unnecessarily complex health insurance program in the nation.

Variation breeds inequality

There are over 50 Medicaid programs, one administered by every state, the District of Columbia, Puerto Rico, Guam and the other territories. While each must provide basics like covering hospitalizations, physician appointments and drugs, every state retains the right to limit access.

In Texas, for instance, where 32% of the population is poor or near-poor, the state doesn’t allow a family of three to enroll in its Medicaid program until they earn less than 17% of the poverty level or $3,626 a year. No wonder 25% of Texans, three-fifths of them Hispanic, are uninsured.

If the current iteration of the bill passes, the coverage disparities in different state programs will remain in place. Many of the states that expanded Medicaid offer additional benefits like dental coverage, physical therapy and substance abuse treatments. Those states that have not expanded tend to offer few of the extra services that are essential to helping people get back on their feet when they’ve hit hard times and need government-provided coverage.

That unfairness extends to who pays the bill for both basic and expanded Medicaid coverage. Medicaid by design is a joint federal-state responsibility (this design was deemed a total failure when it was tried for Medicare before 1965). The baseline for the federal share now stands at 56% of a state’s total cost for basic Medicaid (nursing home care, long-term services and support for the disabled, and the children’s health insurance program are calculated separately).

But that support is larger if a state has a high level of poverty. Tennessee, Texas and Florida, for instance, get 73%, 67% and 67%, respectively, of their basic Medicaid costs picked up by the federal government. None has a state income tax.

New York, California, Maryland and Massachusetts, on the other hand, have among the highest state taxes in the nation and are limited to the baseline (Illinois, another high tax state where I happen to live, receives only one percentage point above the baseline). The Trump tax law of 2017 compounded this inequity by limiting the state-and-local tax exemption to just $10,000 a year for families filing joint returns, a tax coldly calculated to hit upper middle class voters (most of them Democrats) in high tax states.

BBB will be better than nothing

The complexities in the nation’s health insurance system will only grow worse after this latest patch passes, even as it helps some of the nation’s uninsured. Take Evelyn Davis, the 63-year-old former home health aide from Albany, Georgia, whose story was the lead anecdote in the aforementioned Times story. She is desperate for a no-cost Medicaid or a no-cost exchange plan so she can obtain treatment for her high blood pressure and diabetes. She’s already had two heart attacks and suffers from heart palpitations. Unfortunately, she lost her husband’s coverage when she got divorced two years ago. She tried to get on disability, which would have qualified her for Medicare coverage, but was denied.

The current legislation is her best hope for coverage for the next two years until she qualifies for Medicare. But what will her insurance coverage look like over those two years? Under the new compromise bill, she will first go on an ACA-style plan run by an insurance company (there is no chance of relief from Georgia Medicaid because it is one of a dozen states whose programs do not cover single adults).

Then, when she turns 65, she will be able to join the federal Medicare program. However, that has a different set of benefits than ACA-style plans, and a different set of co-pays and deductibles for both hospital and physician visits. Assuming her Social Security benefits keeps her poor (a good bet given she worked as a home health aide), she will then qualify for Georgia Medicaid, which is available to low-income seniors, to pay Medicare’s co-pays and deductibles.

In other words, over the next two years, she will have interact with three separate government-funded programs to maintain coverage. Moreover, her providers – the doctors and hospitals in the plans’ different networks – will get different payments based on who’s paying the tab.

What’s the alternative?

For decades, progressives have called for a comprehensive Medicare for All health insurance system to simplify peoples’ choices when it comes to coverage. It could be paid for, advocates say, by negotiating lower drug prices, paying Medicare rates to all providers, and reducing the huge bureaucracies created by a multi-payer system.

However, though M4A is broadly popular when first broached in public opinion polls, it loses majority support when people are told it will result in their losing their employer-sponsored coverage. Despite Sen. Bernie Sanders’ good showing in the 2020 primaries, his signature reform was never considered in the BBB bill. Why? Not only is it anathema to the insurance industry, applying Medicare rates to everyone is vehemently opposed by providers since it would lead to large cuts in their revenue. Private insurance pays, on average, 246% of Medicare rates, according to this recent Rand study.

Given those harsh political realities, what else might progressives advance? Rather than continuing to fight for a reform that draws opposition from almost every hospital, insurance and pharmaceutical firm in the nation, they might consider pushing for an incremental reform that has a decent chance of winning support from centrists and perhaps even some Republicans.

Such a plan could fold every publicly-financed health insurance program into a single payer plan – call it Medicare for All Public Programs (M4APP). It would include Medicare, Medicaid, the Children’s Health Insurance Program, and the individual and small group plans sold on the exchanges.

I outlined the rationale for federalizing Medicaid in this article a few years ago. But I can hardly lay claim to originating the idea. Greg Anrig of the Century Foundation provided a comprehensive argument in support of the approach during the ACA debate in 2010.

How would it work?

Let’s start by saying what M4APP is not. It’s not the block grant federalization of Medicaid proposed by Ronald Reagan in 1982 and embraced by deficit hawks like the Brooking Institution’s Alice Rivlin after passage of the ACA. Block grants would leave the 50-plus programs intact and decision-making in the hands of the states. This would inevitably result in variations in state programs. It would also lead to fluctuations in the federal government’s commitment to providing comprehensive benefits to those whom many Americans deem undeserving of the basic human right to health care.

M4APP also wouldn’t end private insurance companies’ participation in the program. Over 40% of seniors already choose privately-run Medicare Advantage plans. Over 70% of Medicaid beneficiaries already have their care managed by private insurance companies. There’s no reason to exclude insurers’ participation in M4APP, although current problems with MA plans (their upcoding for risk adjustment; paying less than Medicare rates to providers, for instance) should be corrected.

M4APP could use the same benefit structure and payment rates as the current Medicare program. The poor would be protected by eliminating most out-of-pocket expenses for people at the bottom of the income scale, just as Medicare does now for people who are eligible for both Medicare and Medicaid. In other words, if you make under a certain amount, your premiums, co-pays and deductibles are zero. There could also be sliding scales for higher levels of income – something Medicare already does in in its Part B (physician services) premiums. There could also be an absolute annual cap on all out-of-pocket expenses including drugs for all people in M4APP, say somewhere between 5% to 7% of income.

Providers would benefit from Medicaid’s shift to M4APP since state programs currently pay on average about 85% of Medicare rates. While including higher-paying ACA exchange plans in the expanded public plan might reduce their payments to providers, the Center for Medicare and Medicaid Services could hold hospitals and doctors harmless by ensuring the common payment rate covers the actual cost of delivering care.   

Raising Medicaid’s payment rates to Medicare levels would help both beneficiaries and employers. Low-income beneficiaries would benefit by expanding the number of providers willing to take them on (a recent survey by the Medicaid and CHIP Payment and Access Commission found just 71% of providers willing to accept Medicaid compared to 85% for Medicare and 90% for private insurance).

Moreover, low-income workers who bounce between public programs (the exchange-based individual plans when they’re working; Medicaid or uninsured when they’re not) would finally have a seamless insurance system. Moreover, it would be integrated with their old-age plan. This would be especially beneficial for moderate-income people whose employment prospects and incomes often decline as they near retirement.      

Employers already providing insurance for workers and their families would benefit through lower insurance rates. As noted above, Medicaid currently pays providers on average about 85% of Medicare rates. Raising all public program rates to Medicare rates (including underpaying MA plans) would reduce the cost-shift onto private plans, which, as noted above, currently pay 2 ½ times Medicare rates.

For state governments that must use their scarce tax dollars to support Medicaid (to the tune of $226 billion in 2019, according to CMS), merging and federalizing public programs would represent a huge windfall. They could lower sales and income taxes (Medicaid takes about 16% of the average state budget, trailing only education as a share of total spending). Or, they could use the federal takeover to free up resources for chronically underfunded priorities like education, infrastructure and the social services that can reduce long-term health care spending.  

Funding the switch

M4APP will obviously require an increase in federal spending. But some of that will be offset by lowering the provider payment rates for individual plans to Medicare rates, which will reduce the amount spent on individual subsidies. For the rest, the increase in federal taxes needed to eliminate state spending on Medicaid can be sold as a form of revenue sharing, an approach once embraced by Republicans.

Adopting M4APP also presents an opportunity to enact progressive tax reform. The federal government could substitute new taxes on high incomes and wealth for more regressive state sales taxes.

The efficiency of a single public program (compared to multiple public programs) will also offset some of the costs. And to the extent the shift to a single plan increases the federal government’s share of the total health care tab, those increases will be offset by reduced spending by employers, workers and their families, who will benefit from lower lower health insurance premiums and lower out-of-pocket expenses.

To placate federal policymakers, consolidating Medicare, Medicaid, CHIP and the ACA plans into a single public plan should include growth limits on total provider payments. The goal should be to limit the health spending growth rate to something less than the rate of economic growth, which over time will free up resources for other domestic priorities.

One final thought: This is an approach that can be tried at the state level first. It would require Congress to pass legislation authorizing the state experiments since it can’t be attempted under the ACA’s Innovation Center, whose pilot projects must show they save the federal government money. But once that roadblock is removed, one can imagine states like Vermont, Massachusetts and California taking the next step toward universal coverage and comprehensive payment reform.