In early May, deep into the Presidential primary campaign, Hillary Clinton sprang a surprise. Although she isn’t willing to go as far as Bernie Sanders and endorse universal Medicare-like coverage for all, she said that she favors giving people under 65 (exact age unspecified) a “public option” of buying into the existing Medicare system.

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To your clients age 55-65 facing constantly rising health insurance costs, this must sound like good news, and it makes for good political theater in an election year.

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But it’s an old chestnut idea that has been studied to death without ever getting much traction – for three good reasons:

1. Medicare spending is a runaway freight train. According to the Heritage Foundation, Medicare accounts for 15 percent of the federal budget and is the fastest-growing federal program in terms of spending. Between 2014 and 2024, Heritage projects Medicare spending will increase by 7.2 percent per year.

Medicare actually consists of two programs, and only one, Hospital Insurance (HI), is largely self-funded by premiums. The other, Supplemental Medical Insurance (SMI), covers costs of Medicare Parts B and D. Its trust fund has dwindled to about $60 billion of reserves, and Part B and D premiums only cover about 22 percent of program costs. Virtually all of the rest, about $250 billion per year, comes straight from U.S. Treasury general revenues.

2. The premium cost of a public-option buy-in could be high. In a 2008 study, the Congressional Budget Office estimated that the per-person premium for a “revenue-neutral” Medicare buy-in option (one that doesn’t cost the Government more) from age 62-64 would be $7,600 per person. Given increases in medical costs since then, the annual premium could be as high as $11,000 per person today.

3. Relatively few U.S. households might find the public option attractive. According to a 2009 report by the Kaiser Family Foundation, only about 12 percent of 34.3 million Americans were uninsured in 2008, and that percentage probably is lower now with Obamacare subsidies. More than three million people age 55-64 already qualify for Medicare because they have received Social Security Disability (SSDI) payments for at least two years.

While there is a defined market of people of pre-retirement age who are uninsured, they are more likely to be poorer and sicker than those who qualify for group or non-group private insurance.

The Kaiser authors concluded that a budget-neutral public option would be vulnerable to adverse selection. “Sicker people who have the greatest need for health insurance would be most likely to…disproportionately enroll in the buy-in. This would lead to a situation in which premium increase each year.”

Tell your clients that Presidential campaigns are full of promises, like the public option Medicare buy-in. Unfortunately, there is a thing called math and for Medicare the math is never very good.

Instant Insights /

The bad news about Medicare buy-ins for pre-retirees

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