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Is a Senate Health Reform Deal Imminent? (Updated)

Morgen on December 8, 2009 at 9:33 pm

Harry Reid announced late this evening that Senate Democrats have reached a tentative deal to drop the public option in exchange for a Medicare “buy-in” program for older Americans, and a new national health care plan provided by private insurers, similar to the Federal Employees Health Benefit plan that members of Congress receive. However, the Medicare expansion is really the key to making this deal work, as it’s an old liberal strategy (pre-Hacker) to move the country further towards a fully government-run system.

Of course like with everything ObamaCare the real devil is in the details, and it’s not entirely clear yet what the deal makers in the Senate have in mind. Early indications are that adults from age 55 to 64 would be eligible, but only those who do not have employer-provided insurance and would not otherwise be eligible for Medicaid. Also, since it’s a buy-in program presumably premiums will be calculated to largely offset the cost of the benefits provided, but it’s not clear how this will work in conjunction with the subsidies offered in the exchange.

However, strip away the unknowns and the complexity, and in essence it’s just a new twist on the public option. Liberals would get the “robust” public option with Medicare reimbursement rates that they have been hoping for, but in exchange they would concede to moderates that access would be limited only to older Americans.

Frankly, I think this is a far better deal for liberals than what seemed possible only a week ago, and the fact that Sen. Rockefeller is smiling only reinforces this. And for anyone hoping for Sen. Lieberman to quash this idea, he’s already signaled his willingness to support it, contingent upon the CBO analysis of the new provisions. So all eyes will be on the CBO over the coming days.

However, we already have a preview of their analysis as a Medicare buy-in plan was included in a pre-analysis of health reform options that the CBO published just last December. The plan they evaluated was for a much more limited buy-in where only adults from age 62 to 64 would be eligible. Which makes this cautionary note from the CBO all that much more relevant given the much more expansive plan being discussed now in the Senate:

A disadvantage of this option is that the ability to buy Medicare coverage at age 62 would encourage some people to retire earlier than they otherwise would have. Some of those early retirees could face financial hardship in later years because many people underestimate the financial resources needed for retirement. In addition, because the cost of the coverage would not be subsidized, many low-income near-elderly people would continue to be uninsured. A potential problem with this option is that the amount of adverse selection that the program experienced could be greater than anticipated, which would put upward pressure on premiums and in turn reduce participation. (The potential for adverse selection would be limited in that the program would be offered only to individuals ages 62 to 64, who are more similar to each other in their health status and attitudes toward insurance than are individuals in the general population.)

Note that the last statement about adverse selection being “limited” would not be relevant under the Senate plan with eligibility for Medicare starting at age 55. In fact, it’s virtually a given that there would be a tremendous amount of adverse selection under the Reid plan since the pool of uninsured over age 55 consists largely of people with pre-existing health conditions which prevent them from obtaining coverage in the current private market. Given this, the Medicare premiums charged will either have to be increased to the point in which they will not be affordable for most of those eligible to participate, or the government will have to absorb a substantial share of the costs. (My money is on the latter.)

Perhaps the first concern expressed by the CBO is even more significant as there is no doubt that there are a large number of near-elderly people who are only working in order to receive health insurance benefits through their employer. Considering the anemic growth rate of the economy, and the rapidly expanding national debt, it seems ill advised for the government to create an incentive for people to retire early. Where in all likelihood they would also elect to receive social security benefits early (a point also noted in the CBO report), further accelerating the deficits in social security spending.

Of course there will be a whole host of unintended consequences if ObamaCare passes, but given the CBO’s prior warning on these issues, these are KNOWN consequences. It will be interesting to see if the forthcoming CBO report sugar-coats any of these issues compared to their earlier analysis. And it will be more interesting to see whether any moderate Democrats get cold feet on this idea once the potential impact is better understood.

Update (12/9):

In the comments, Mark points out that Ezra Klein from the Washington Post commented today on the same CBO report from December 2008 that I quoted from above. Klein, however, reads only positives into the CBO’s prior analysis:

The Congressional Budget Office has scored Medicare buy-in before — and they found it brightens the program’s financial prospects by bringing healthier people into the pool and reducing expected spending for these people when they turn 65.

I encourage you to read the relevant section of the CBO report for yourself (pg 53-54). But I see nothing there to support Klein’s claim that a Medicare buy-in will bring healthier people into the Medicare pool and extend the program’s life. Quite the contrary. As I highlighted above, the CBO’s analysis was that less healthy people would be most attracted by this program (the “adverse selection” problem). In fact, here’s another quote from the report which re-affirms this:

The premium for the buy-in program would be higher than if the entire eligible population was enrolled because the program would be likely to experience adverse selection (that is, people who enrolled would probably be heavier users of health care services, on average, than those who did not enroll).

Klein’s source for this was a Think Progress article which makes the same claim, but links only to the same CBO document as the underlying source. Not surprisingly, it seems that both Klein and Think Progress are guilty of a misrepresentation of the facts.

And keep in mind that this CBO analysis was based on a buy-in program limited only to those age 62-64. Expanding eligibility down to age 55 should only magnify the adverse selection problem.

John Adds: Wait, you’re saying that Ezra Klein is making stuff up in order to make ObamaCare more palatable to his readers? I find that hard to believe. [snicker]

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