Recently, EBRI hosted a webinar exploring the potential ramifications of a Medicare buy-in policy on employers. Such policies have been periodically floated as a means to expand coverage and wrangle health care costs and may very well emerge as a palatable bipartisan reform of the health care industry. Essentially, a Medicare buy-in would allow older people under the age of 65 (proposals have ranged from those 62–64 to those 50–64) to enroll in Medicare. Such a system has the potential to transfer a good deal of spending from private employment-based insurance plans to Medicare. But exactly how much health care spending shifts critically depends on who ends up switching.
A Medicare buy-in policy has two likely outcomes, each with drastically different implications for employers. First, only workers who spend a lot on health care would switch. Since Medicare features lower payment rates for medical care than private insurance, high spenders could be tempted to switch to Medicare if their expenditures are minimized. Should that scenario play out, the impact on employer spending on health care could be large. The second likely outcome is if only workers who spend very little on health care switch; in this scenario, high spenders could prefer to remain in the employer-based plan in order to benefit from defined out-of-pocket spending maximums. Conversely, low spenders would not be concerned about Medicare’s lack of an out-of-pocket maximum. In that scenario, the impact on employer spending on health care would be quite small.
EBRI built a simulation model to better understand which workers would be tempted to switch to Medicare and to quantify the impact on employers. In the model’s baseline simulation, we found that the median employer would experience about a 20 percent reduction in total health care spending. The workers who switched to Medicare tended to be lower spenders who did not bump up against their plan’s out-of-pocket maximum. We also found that more generous employment-based insurance plan design — that is, lower deductibles, lower premiums, and lower out-of-pocket maximums — tended to induce more buy-in-eligible workers to stay on their employment-based insurance, and vice versa.
Over the course of the presentation, we received many astute questions from the audience, sparking lively discussion. Alas, given time constraints we weren’t able to fully answer each question. One attendee asked us what might happen to the cost per health plan participant after eligible and interested workers switched to Medicare. Since our model indicated that switchers tended to be healthier, the result is that the cost per remaining plan participant increased, which could manifest in higher premiums. Of course, employers could divert some of the cost savings from workers who switched to Medicare to blunt those cost increases.
Another attendee asked us about what the impact might be on workers who decided to retire early. These workers would not be deciding based on the employer-sponsored plan but rather plans from the individual exchanges. [JA1] The calculation changes somewhat among this segment of the population, and the model in its current form does not specifically address this issue. However, a Medicare buy-in policy could be attractive to early retirees, depending on their situation. Subsidies are available for people earning less than 400 percent of the federal poverty limit and could make plans purchased from an individual exchange appealing compared with a Medicare buy-in. However, for people who are not otherwise eligible for subsidies, the Medicare buy-in would likely be a more appealing choice.
Additionally, we received useful feedback on the model, and if momentum behind a Medicare buy-in builds during a new legislative session, we will plan to continue iterating on the model. A Medicare buy-in has the potential to dramatically alter the health care market, particularly for employers, and understanding its costs and benefits is critical.
A replay of the webinar is available here.