An expansion of Medicare Goes Unnoticed

12/28/2012 12:00:00 PM
I recently realized something about the Affordable Care Act that no one else seems to have noticed: it implicitly expands Medicare coverage for seniors.

To be clear, there is no actual provision increasing the disbursements from the Medicare trust funds. However, the law does implicitly subsidize healthcare for older adults. It does this through a combination of seemingly unrelated provisions. The first is a provision that specifies that insurance premiums for older adults cannot cost more than three times as much as those for younger adults. This means that premiums for old adults would fall, while those for young adults would rise, sometimes substantially. However, the healthcare law also grants subsidies for those making up to 400% of poverty level to purchase health insurance. For reference, 400% of poverty is the median household income, and that group includes a disproportionate share of younger adults because household income rises with age, meaning that in effect, the subsidies will be compensating young adults for having to pay for senior's healthcare through higher premiums. In other words, the law could have achieved essentially the same result by simply offering those older adults in the 60 to 65 year old range with a voucher to apply towards their health insurance.

This brings us back to a common theme in healthcare economics. Namely, that the private sector is pushing the highest riskpools onto the government. I explained here that Ryancare--Rep. Paul Ryan's plan to replace Medicare with an optional voucher system--would cause lower risk individuals to pick private insurance, leaving the government saddled with the expenses of an increasingly costly pool of seniors. We will see this in action with the ACA, though indirectly. Insurance companies will shift the cost of high-risk pools onto those receiving government subsidies, meaning that in effect, the government will absorb the cost of high risk individuals.