Policies that grant the near elderly the option to enroll or buy into Medicare prior to age 65 have been proposed periodically for over two decades. Given Congress’ appetite for health care reforms, a Medicare buy-in could feasibly emerge as a bipartisan compromise. However, the effects such a regime might have on employers and the employees who remain on employer-sponsored insurance are not well understood.
There is a wide range of ramifications on employer spending, and they depend entirely on which workers decide to switch to the Medicare buy-in. If only less-healthy, higher-spending workers — those in the top 10 percent of spenders in the 50–64 population — enroll in Medicare, then total spending on employer-sponsored plans could fall significantly. However, if only healthier, lower-spending workers — those in the bottom 10 percent of spenders in the 50–64 population — enroll in the Medicare buy-in, then the impact on total spending on employer-sponsored plans would be marginal.
To explore which workers might switch from employer coverage to Medicare, EBRI built a simulation model. We find that, depending on plan design, the workers who switch to Medicare tend to be healthier and lower-spending workers. Thus, the impact on spending would likely not be extreme.
Our model might suggest that expenditures incurred by employers will decrease. Workers are sensitive to the generosity of their employer-sponsored plan relative to Medicare and are particularly sensitive to monthly premiums and out-of-pocket maximums. However, providers might raise their commercial prices to offset the loss of revenue as more people are covered by Medicare.
Further, workers switching to Medicare are likely to be lower spenders who do not reach the annual out-of-pocket maximums of their employer-sponsored plans. As such, the premiums for workers who stay with their employer-sponsored plan frequently rise.
