4.  Medicare Buy-In for Certain People Ages 55-65

Overview. Americans ages 55 to 65 are one of the most difficult populations to insure: they have less access to and a greater risk of losing employer-based health insurance; and they are twice as likely as people ages 45 to 55 to have health problems. Some lose their employer-based health insurance when their spouse (frequently the husband) becomes eligible for Medicare. Many lose their coverage because they lose their jobs due to company downsizing or plant closings. Still others lose insurance when their retiree health coverage is dropped unexpectedly. As a result, this is the fastest growing group of uninsured.

To address this problem, the President included in his FY1999 and 2000 budget submissions a targeted, paid-for proposal to give Americans nearing age 65 new options to obtain health care coverage. There are three parts to this proposal: The centerpiece of this proposal is a Medicare "buy-in", which allows eligible people to purchase Medicare coverage at a fair price. This is comparable to the Social Security option to allow people to begin to receive benefits at the age of 62, paid for by reducing the amount that they receive over the course of their retirement. It also assists displaced workers ages 55 and older by offering those who have involuntarily lost their jobs and their health care coverage a similar Medicare buy-in option. Thirdly, it providers Americans ages 55 and older whose companies reneged on their commitment to provide retiree health benefits a new health option by extending "COBRA" continuation coverage until age 65.

All three proposals are designed to be paid for by the people who benefit. People ages 62 to 64 who buy into Medicare will, over time, repay the amount that Medicare "loans" them when they are buying in. Displaced workers will pay a premium that takes into account participants' costs. And, the COBRA buy-in policy has no Federal budget impact whatsoever. The short-term Medicare "loan" to buy-in participants, plus the costs of the displaced workers' buy-in, will cost approximately $1.4 billion over 5 years. These costs will be financed by a series of offsets in the President's budget; as such, its costs are not included in the summary table for this plan. The initiative should help 300,000 to 400,000 people.

a.  Medicare buy-in for people ages 62-64

Policy: People ages 62 through 64 (without access to employer-sponsored insurance) would be able to buy into Medicare early. They would pay for this coverage through a two-part premium "payment plan." First, participants would pay a base premium of about $300 per month – the average cost of insuring Americans in this age range. Second, participants would pay an additional monthly payment, estimated at $10 to $20, for each year that they buy into the Medicare program. This premium, to be paid once participants enter Medicare at age 65, would cover the extra costs of sicker participants. This two part "payment plan" enables these older Americans to buy into Medicare at a more affordable premium, while ensuring that the buy-in option is self-financing in the long run.

Background/rationale: People ages 62 to 64 are simultaneously the most likely to develop health problems and the least likely to have access to employer based health insurance. This forces them to turn to the individual insurance market, which can be expensive or denied altogether in most states. The Social Security program recognizes that some people in their early 60s may need access to benefits, and allows them to receive partial benefits. No such option is available in Medicare.

b.  Medicare buy-in for displaced workers ages 55-62

Policy: The plan would also offer those who have involuntarily lost their jobs and their health care coverage a similar Medicare buy-in option. Individuals choosing this option will pay the entire premium at the time they receive the benefit without any Medicare "loan," in order to ensure that Medicare does not pay excessive up-front costs and participants do not have to make large payments after they turn 65 (although some Federal costs are expected due to adverse selection).

Background/rationale: This policy responds to the increased vulnerability of older Americans to work transitions and company layoffs. Such workers have a harder time finding new jobs: only 52 percent are reemployed compared to over 70 percent of younger workers. Nearly half of these unemployed, displaced workers who had health insurance remain uninsured.

c.  Access to health insurance for retirees whose employers renege on coverage

Policy: This proposal allows retirees whose companies reneged on their commitment to provide retiree health benefits to buy into their former employers' health plan through age 65 by extending the availability of COBRA coverage to these families. This policy provides much needed access to affordable health care for these retirees and their dependents whose health care coverage is eliminated after they have retired. Retirees will pay a premium similar to that of other COBRA participants.

Background/rationale: In recent years, the number of companies offering retiree benefits has declined: in 1993, only about half of full-time workers in medium to large firms had access to retiree health insurance, compared to 75 percent in 1985. Some companies have ended coverage only for future retirees, but others have dropped coverage for individuals who have already retired. It is often difficult to impossible for retirees to find affordable, alternative sources of health insurance.