The state and native share within the upcoming well being debate
The Medicare for All 2020 election campaign was dampened by math and political realities, as well as other priorities, in the early months of the Biden administration. Although dozens of Congressional progressives have made noise about reducing the Medicare Eligibility Age according to President Biden’s American Families Plan, its infrastructure package has been the focus, along with a tax debate that is currently in its first round. While the experts focus on other areas, it is a good time for state and local executives to work out their plans behind the scenes for maximum leverage in the future healthcare debate.
The two major federal health care programs, Medicare and Medicaid, are a key, but sometimes overlooked, part of the state and local government budget. Medicare comes into play for virtually every public employer providing health care retirement benefits as it provides a cost subsidy for anyone over 65. From this point on, the cost of private insurance falls well below the cost of active workers under this age. Many public employers’ plans for post-retirement health care end or sharply cut benefits by the age of 65 when Medicare kicks in.
And even governments that do not provide retirement benefits will be affected by Medicare reforms that lower the eligibility age as they affect their older workers’ decisions about when to retire, which in turn affects payrolls and costs the pension fund affects group insurance tariffs.
The ubiquitous problem for public employers is that most government employees starting careers in their early twenties are eligible to retire on full retirement before age 65, especially teachers and public safety, corrections and workers, theirs physical performance tends to worsen with age. Even if their pensions are properly funded, the cost of providing scholarships or group insurance to these workers after retirement is largely unfunded and continues to increase annually. A burgeoning shadowy number of retirees receiving health insurance benefits – concurrently with their junior representatives obtaining group health coverage – is often one of the top three or four major budget problems faced by many jurisdictions.
For public employers that do not provide retiree health insurance, the opposite problem applies: your older workers may be eligible for a full pension but cannot afford to retire in their late 50s or early 60s because of the cost of the Health insurance can easily chew a quarter or a third of their pensions. Typically, these workers are the most expensive to their employers as they occupy the top pay scale and their actuarial health care costs increase group insurance rates. For employers who include retirees in their group insurance program, the problem is similar, and sometimes even worse. Anything that can reduce the cost of health insurance for employees who retire before the age of 65 takes the pressure off public employers’ budgets. This could become an incentive for early back-door retirement.
This is where proposals for “Medicare at Cost” – a twist on the “public option” long sought after by many Democrats – could be a boon to most state and local governments. If anyone who is 60 years old were eligible to join the Medicare program by paying a premium based on the federal government’s actual actuarial nonprofit cost of providing services to this younger population, almost all participants would have healthcare costs lower than private and employer group insurance – the result of reducing overheads and profits of insurance companies while increasing the group’s purchasing power. Employers can decide (or negotiate with trade unions) whether to terminate group insurance for all employees and retirees over the age of 60 or to keep their existing benefit structures.
Over time, Medicare at Cost could be expanded to include successively lower age groups, each of which is subject to group-wide age-related premiums for their respective age cohorts. Public employers could replace the group insurance plans of retired participants with a scholarship based on years of service and move away from insurance for retirees through their group policies for active workers. When Medicare at cost becomes available to older workers and potentially to the entire workforce, employers or individual workers can opt out of private group insurance if material savings can be made. This wouldn’t happen overnight, but the longer-term savings for state and local governments and their taxpayers are likely to be substantial.
The bluest bloc of Congressional Democrats are trying to add a purer form of Medicare expansion to Biden’s American Families Plan, lowering the eligibility age to 60 or even 55 without the younger beneficiaries buying-in Medicare-at-cost need. But these lawmakers have not offered a credible plan to pay for it. Because of this, a Medicare-at-cost strategy would be the best way to get that ownership in 2021 without dumping gasoline on the political fire that is already raging among the fiscal conservatives who shout that the whole system of Socialism and deficit financing abound. Let’s not forget that the Medicare Trust Fund is already broke and will run out of money in just three years. Simple budget calculations show that businesses and the rich cannot be taxed three times on their own to cover the infrastructure, family plan, and costs of future healthcare reform. Medicare at Cost is a low hanging fruit and the most sensible place to start bipartisan dialogue.
The other notable federal program is Medicaid, a state problem. The challenge for states is that under current rules and treaties, any expansion of this program to cover additional lower-income Americans will cost the states more and the expansion could become a worse problem for state budgets in the future if it is conservative or are conservative The cost-cutting congress should reduce the federal share and throw this expenditure on the states. What the states must now encourage is a shift in costs towards Washington, while the Democrats have an electoral advantage and before a possible medium-term shift in majorities in Congress.
One of the most important financial benefits Congress could offer states would be for federal government to pay all – or at least additional – costs of Medicaid. As their share, the states currently pay around 200 billion US dollars annually, which corresponds to around 15 percent of their total budget. Exempting states from this Medicaid obligation to make it a fully federal responsibility would bring enough budget relief to states to give every student a benefit as great as two years of free public tuition. This would go a long way in helping Biden’s goal of improving American competitiveness while reducing student debt at the same time.
Most voters view health care reform as a federal issue with mostly household benefits. The commitment to state and local governments and their stakeholders is just as great. It is time for governors and mayors to qualify for their A-game and work with their congressional officials and Capitol Hill lobby groups to steer the new healthcare debate in a direction that could bring fiscal benefits for decades.
Governing’s columns of opinion reflect the views of their authors, and not necessarily those of the editors or management of Governing.