Medicare for America Tweaks

The Medicare for America Act of 2019 is an amazing piece of work. It’s an Australian-type plan, where Americans not covered by conforming private insurance are covered automatically by Medicare.

Subtitle B, Sec. 2203 establishes all the things Medicare for America covers; likewise, as per Part C of Subtitle B, all private plans shall conform to Medicare for America, and are called “Medicare Advantage for America” plans.

There are a few things I’d change, of course.

Premium Formula

Title I, Sec. 104 establishes premiums based on all kinds of bounds and numbers. The premiums are based on regional rates, may be no more than 8% of adjusted gross monthly income, and are reduced based on the household income relative to the poverty line.

The American Citizens Dividend would eliminate all downsides of a flat FICA, providing a more-stable and reasonable system. Instead of paying an 8% premium if you’re enrolled in the plan, every American would pay the Medicare for America FICA—which would be roughly 1.25% by calculations I made in 2017.

Consider a household with $25,000 of income and the high 8% premium. The dividend’s premium is 12.5%, so the household pays 20.5% into these FICA taxes in total. The American Citizens Dividend pays over $6,000 per single adult, so a one-adult household is still net plus $875 after FICA and Dividend, and a two-adult household is net plus $6,875.

At the 1.25% level, it’s $2,500 and $8,500, of course.

All Americans should pay into the healthcare plan, unlike in Subtitle B, Sec. 2204(a)(1), which specifies:

Subject to paragraph (2), each individual enrolled for benefits under this title for a year shall pay monthly community-rated premiums for such year in an amount determined by the Secretary in accordance with subsection (b).

Medicare for America, Subtitle B, Sec. 2204(a)(1)

By having all Americans pay in equally, we greatly reduce the FICA and share our collective responsibility for healthcare. Yes, that means those of us with individual healthcare pay a bit more—I’d be paying $1,000/year into Medicare for America only to use my private plan.

There’s more, though: the plan as-is isn’t sustainable except for the provisions that the fund will receive Federal subsidies. This means it’s a mystery how much of anyone’s money goes to the fund, and arguments about how Medicare affect the deficit are suddenly valid because it’s no longer really a social insurance and not self-funded. My method is totally self-funded, revenue-neutral, and removed from any impact on the deficit.

Employee Opt-In

Under Subtitle C, Sec. 126(c), we find this long paragraph:

Employee Choice.—An employee may opt out of a qualifying employer-sponsored plan as satisfied by subsection (b)(1) in order to enroll in Medicare for America. The employer shall make a contribution equal to the contribution it shall make in order to meet the requirements established by subsection (a)(1) or (a)(2). The Secretary of Health and Human Services shall have authority to set standards for determining whether employers or insurers are undertaking any actions to affect the risk pool within Medicare for America by inducing individuals to decline coverage under a qualifying employer-sponsored plan and instead to enroll in Medicare for America. An employer violating such standards shall be treated as not meeting the requirements of subsection (a).

Medicare for America, Subtitle C, Sec. 126(c)

In essence, if an employee opts out, then the employer must pay an 8% payroll tax.

The employer is required to pay 70% of the healthcare plan costs in any case. Instead of 8%, I have suggested the employer and employee both pay as payroll tax what the employer would have paid had the employee taken the employer’s plan. This removes any financial incentive and allows the employee to select whichever option they prefer.

Small Employers

Under Subtitle B, Sec. 2202(b)(3)(B), small and large employers are treated differently regarding enrollments.

My solution is simpler: each employee shall pay no more than some affordable rate (e.g. 8% of income) into their premium, and the employer shall pay a minimum of 70%. If the employer does not provide conforming care (notably, by charging the employee more or by making an employee ineligible), then the employer shall pay twice this affordable rate as a payroll tax.

That means if the employer pays $7,000/year for the employee’s premiums and the employee earns less than $43,750 annually (yes, nigh-impossible with a structural minimum wage, except for part-time employees), the employer is better off simply not offering a healthcare plan.

This offsets some of that 1.25% FICA, and effectively pro-rates and subsidizes employers for the healthcare costs of part-time employees below a certain wage: instead of paying $7,000/year for a half-time employee, the employer only pays $3,500/year.

Under this approach, there is no difference between large and small businesses. The administration is the same, and tax considerations and inflation and whatnot factor out.

Ghent System

I would additionally provide a hybrid Ghent system, such that an employer and labor union gets a 10% subsidy for their share of the premium for any employee covered by a union-provided healthcare plan, so long as the employee is a member of the union.

If the employee’s union has negotiated a conforming Medicare Advantage for America plan, then the employer must pay 70% of the premium cost. The union can collect the remainder through dues. In this case, the employer will receive a subsidy of 7% of the premium cost, and the union will receive a subsidy of 3%.

This encourages union participation, as the employer receives a minor tax break and the employee’s dues are slightly-lower. Note that 70% of the healthcare premium is shifted to the employee and off the union, so the employee doesn’t cover those costs through dues.

Other Notes

There are a lot of excise taxes, notably on tobacco and alcohol, in here. The pipe tobacco excise jumps from about $2 to $50, for all that’s worth.