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Dec. 14 2009 10:35 AM

Public Option Wiki

Medicare buy-in, RIP.

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Medicare buy-in. This was the most intriguing part of the deal, and therefore became the deal-killer. Initially the conservative Democratic Sen. Ben Nelson, D-Neb., who rejected the public option as too left-wing, warmed to this alternative, which was more left-wing. (One of its most ardent proponents was Howard Dean, and Ted Kennedy explicitly proposed it  as a stepping stone to "Medicare for All.") But alas, I was not the only person to notice this, with the result that initial wariness by Lieberman and the swing-voting Republican Sen. Olympia Snowe later hardened. Snowe eventually said any kind of Medicare buy-in was a deal-killer  for her, Nelson started to back away, too. "I think it is going to be the lesser of the popular things," he told Politico, "but I am keeping an open mind." The final nail in the coffin was when Lieberman said on CBS News' Face the Nation, "I certainly would have a hard time voting for it," a stance that became a promise to filibuster against it in a subsequent meeting  with Reid. Never mind that Lieberman advocated  a Medicare buy-in as Al Gore's running mate in 2000.

The buy-in, which would be available only as an individual policy, and only to people who lack employment-based health insurance, would start in 2011. Initially it would be unsubsidized. Since people ages 55-64 get sick a fair amount, unsubsidized health insurance for this group would likely be substantially more expensive than the insurance available on the private market, in which risk is spread among a broader age group. Within the individual (nonfamily) market, the average health insurance premium for a person age 55-64 is currently $5,325. Matthew Holt of the Health Care Blog estimated the Medicare buy-in would cost $10,000 a year; Towers Perrin, a benefits consulting company, estimated it would cost $9,000.


At these prices, the buy-in would appeal only to very sick people who have trouble getting health insurance elsewhere (a problem that would be greatly alleviated but not eliminated entirely under health reform's new insurance regulations). This, in turn, would cause premiums to rise still further. Starting in 2014, though, the buy-in would operate through the new health insurance exchanges, and recipients would be eligible for subsidies. These, presumably, would make the Medicare buy-in a plausible alternative for healthier customers.

Because Medicare pays doctors and hospitals less than private insurers do, the American Medical Association and especially the Federation of American Hospitals were quickly on the warpath to kill the buy-in idea. America's Health Insurance Plans  was also unhappy, though it appeared to have less at stake, at least until the subsidies kicked in. Its opposition almost certainly weighed heavily in Lieberman's decision to oppose it.

One key question for CBO was whether a Medicare buy-in would raise or lower health reform's cost to the government. To the extent it meant lower payments to doctors and hospitals, it would lower costs. But to the extent its premiums exceeded those for private insurance policies available on the exchange, the government would have to pay out higher subsidies. On the other hand, to the extent 55- to 64-year-olds passed up private plans offered through the exchange for the buy-in, that would lower the cost of those private plans, thereby lowering what the government would have to pay out in subsidies to their purchasers. The buy-in would encourage early retirement, thereby boosting Social Security payments. But a Congressional Budget Office analysis last year pointed out that since taking the early-retirement option reduces your annual Social Security benefits, over the long term this additional cost would be largely eliminated. Jonathan Gruber, a health economist at MIT, told the Wall Street Journal that he thought the net effect would be to reduce the bill's cost, but at this point no one really knows.

Children's Health Insurance Program expansion. The House bill ends this program for low-income children in 2013, moving its beneficiaries into the exchanges. That would increase out-of-pocket expenditures for participating families. Sen. Jay Rockefeller, D-W.Va., persuaded the Senate finance committee to maintain CHIP for at least another decade, and Reid kept that in the blended bill. But Reid didn't authorize funds for the program past 2013, when current funding ends. The working group alleviated this problem by authorizing funds through 2015.

Insurers' 90 percent rule. The House bill requires health insurersto achieve a "medical loss ratio" of at least 85 percent. In plain English, that means insurers have to spend 85 cents out of every premium dollar on health care.States regulate medical loss ratios, but typically they require only a pathetic 55 percent to 65 percent. The industry claims a medical loss ratio of 87 percent, but in November an investigation of major health insurers by Sen. Rockefeller found many companies' medical loss ratios to be significantly lower. According to  insurance industry whistleblower Wendell Potter, they're typically about 81 percent.

Sen. Rockefeller (who, I've mentioned more than once, is the conscience of health reform) tried in the finance committee to impose the House's 85 percent requirement. He failed. Then Reid included  in the blended bill (at the behest of Rockefeller and Democratic Sen. Al Franken) a requirement for a medical loss ratio of 80 percent for family plans and 75 cents for individual plans. The working group upped that to 90 percent. (Medicare's is about 97 percent.)

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Correction, Dec. 9, 2009: An earlier version of this column stated, erroneously, that all FEHBP plans are for-profit. (Return  to the corrected sentence.)