Medicare Buy-In Could Cost Older Workers, EBRI Says

Washington, D.C. – September 3, 2020  – A new study from the Employee Benefit Research Institute (EBRI) explores the implications for employers and employees of a switch to a Medicare Buy-in program for older workers, finding that health care expenditures incurred by employers would likely decrease. At the same time, however, the research also finds that employee expenses could increase from such a program.

The Issue Brief, “Money Can’t Buy Me Love, but it Might Buy Me Medicare: An Analysis of the Impact of a Medicare Buy-In Policy on Employers” finds that there is a wide range of ramifications on employer spending for a potential Medicare Buy-In program, 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 age 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 age 50-64 population – enroll in the Medicare buy-in, then the impact on total spending on employer-sponsored plans would be marginal.

The analysis concluded that workers who switch to Medicare would tend to be healthier and lower-spending workers. As a result, the impact on spending would likely not be extreme. At the same time, if the workers who switch to Medicare do tend to be lower spenders, the premiums for workers who stay with their employer-sponsored plan would frequently rise. Also, providers might raise their commercial prices to offset the loss of revenue as more people are covered by Medicare.

“A buy-in regime could be more appealing to prospective enrollees if Medicare Advantage plans were available. Employer-sponsored insurance features an out-of-pocket maximum, and so very high spenders will often find that their expenditures are minimized when staying with their employer’s plan since Medicare does not cap out-of-pocket costs,” said Jake Spiegel, EBRI Research Associate and author of the report. "However, Medicare Advantage plans, and Medigap Plans K and L, feature an out-of-pocket maximum that prospective enrollees will find familiar. Since our model suggests that workers more frequently stay with the employer plan when there is a relatively more generous out-of-pocket maximum, it follows that Medicare Advantage plans could nudge high users of health care services to enroll in the buy-in.”

About the Study

To examine the impact of a Medicare buy-in on employers, EBRI conducted two main sets of analyses. For the first set, EBRI made naïve assumptions about who would switch from employer-sponsored insurance to the Medicare buy-in, then calculated the ramifications on total health care spending when systematically higher, but not lower, spenders switched, and also when systematically lower, but not higher spenders switched. For the second set of analyses, EBRI built a simulation model to develop a better understanding of the ramifications of a Medicare buy-in for workers who choose to stay on the employer-sponsored insurance plan.

“It is also important to keep in mind that Medicare buy-in policy proposals face both political and practical hurdles that lay outside the scope of this study,” concludes Spiegel. “In addition, employers may find they have no appetite for Medicare buy-in if it comes with additional levies that wipe out whatever savings they realize, despite the cost savings realized from transitioning older eligible workers to public insurance rolls.”

Methodology

This Issue Brief uses medical claims data collected in the IBM Health Analytics Marketscan® Commercial Claims and Encounters Databases. The Marketscan database is comprised of administrative medical claims data from workers covered by employer-sponsored health insurance, and the dataset contains records for over 20 million patients from 2018. The database contains data on the gross spending on inpatient and outpatient services, as well as on prescription drugs.

“Money Can’t Buy Me Love, but it Might Buy Me Medicare: An Analysis of the Impact of a Medicare Buy-In Policy on Employers” can be found at ebri.org.