Expanding Medicare Could Increase Coverage but Raise Premiums

Expanding access to Medicare could help provide coverage for millions of Americans, but the premiums could increase compared to some individuals’ current subsidized exchange plans, according to an Avalere study.

Lowering the Medicare eligibility age to 60, an act supported by Congressional Democrats and the Biden administration, has the possibility to insure 24.5 million additional individuals between the ages of 60 and 64, 2 million of whom are currently uninsured.

However, switching to Medicare from employer-sponsored health plans or Affordable Care Act (ACA) marketplace plans might not be the right move for some, as Medicare premiums could be higher.

Avalere looked at major cities in Texas, California, Florida, and Illinois to compare premium costs. By comparing premiums of estimated subsidized exchange coverage for 60-year-olds to Medicare premiums for 65-year-olds, they found that whether Medicare reduced costs would depend on an individual’s income.

Their analysis estimates relied on the current subsidies available under the American Rescue Plan Act, which President Joe Biden has proposed making permanent.

Individuals whose incomes are between 138 and 250 percent of the federal poverty level (FPL) would pay lower premiums with silver-level subsidized exchange coverage compared to both fee-for-service (FFS) Medicare with Medigap and Medicare Advantage (MA) coverage, according to Avalere’s findings.

For those who have incomes of 400 percent of the FPL or higher, FFS Medicare with Medigap and MA could offer more affordable premiums.

It is important to consider the costs of out-of-pocket healthcare spending when looking at the different healthcare plans. Medicare FFS does not have a maximum out-of-pocket spending limit, leading some to purchase additional Medigap coverage. This will reduce out-of-pocket spending but will require a higher premium for lower-income enrollees.

Medicare FFS combined with Medigap offers better coverage than some exchange plans but may present higher costs.

MA on the other hand has a maximum out-of-pocket healthcare spending limit and provides a better provider network compared to exchange coverage. MA can lower out-of-pocket spending for lower-income individuals but, again, will require them to pay a higher premium.

“Under an expansion, the intricacies of the Medicare program will create winners and losers,” said Massey Whorley, associate principal at Avalere.

“Policymakers need to consider all the potential impacts to ensure that patients benefit from better coverage and lower premiums under a Medicare expansion, regardless of their income.”

Medicare expansion could benefit employers if they saw a big enough shift from employer-sponsored health plans to Medicare. According to the Peterson-Kaiser Family Foundation, lowering the Medicare age of eligibility to 50 could decrease employer healthcare spending by 43 percent.

With these savings, employers could lower their premiums or increase employees’ salaries.

But in order for employees to make that shift from their employer-sponsored health plans to Medicare, the Medicare option has to be more attractive in affordability and benefits. Avalere’s findings have shown this to be true only for higher-income individuals.

Avalere conducted their analysis taking into consideration the subsidies under the American Rescue Plan Act, which is currently temporary. Making the ACA subsidy increases permanent could have a positive impact on the uninsured and provide more affordable coverage, according to an Urban Institute report.

It is estimated that 475,000 individuals would change from employer-sponsored health plans to ACA marketplace plans due to lower costs from the high subsidies.

The number of uninsured individuals could also decrease by around 14 percent if these subsidies were made permanent.

If changes were made to the ACA, it could possibly fix the family glitch. By lifting the restrictions on who can receive premium tax credits, access to marketplace coverage would increase and premiums would decrease.

Expanding the ACA marketplace subsidies could provide an alternative to Medicare expansion that would cost less for lower-income individuals. While Medicare expansion could benefit certain individuals, policymakers need to consider the impact on everyone, regardless of income.