MEDICARE DIRECT 101

A primary goal of Medicare Direct is to keep it simple.

If we want to expand access to quality, affordable coverage via a Medicare-based public option (as the vast majority of the public does), what’s the most efficient way to get there? On this page you’ll find more resources that explain how Medicare Direct works and can be implemented without congressional action.

What is Medicare Direct? 

Medicare Direct is a waiver program whereby states can initiate Medicare-like coverage options to compete in their health insurance Exchanges.

Why would a state opt to participate?

 While Exchange markets are beginning to stabilize, premiums are high and costs continue to greatly exceed the quality of care delivered. In many parts of the country, there is minimal or no competition. By participating in Medicare Direct, states can lower premiums for all Exchange-eligible residents dramatically and allocate the associated Federal savings to enhancing subsidies, implementing reinsurance programs, increasing provider reimbursement or other goals.

How would the program be implemented?

States would file two waivers, one under section 1332 of the ACA relating to Exchange market reforms and the other under section 3021 regarding the Center for Medicare and Medicaid Innovation. Leveraging the flexibilities these waivers provide, the state would engage with a carefully regulated entity to establish the Medicare Direct plan. As explained in more detail below, the private nature of this plan would allow states to launch this public option-style program with minimal up-front or ongoing costs. The Direct plan would then participate in that state’s Exchange market alongside other plans. Depending on the state’s previous adoption of laws to implement the ACA or pursue waivers under section 1332, additional state legislative action may not be necessary.

How will benefits be established?

Direct plan benefits and consumer protections must adhere to the requirements that otherwise apply to Exchange plans, such as guaranteed issue, ban on preexisting condition exclusions, essential health benefits, etc. Issuers would work with their respective state health care agencies to design plans that meet these requirements and otherwise achieve the goal of dependable, quality coverage, leveraging Medicare policies to the degree feasible to enhance the transparency and equity of plan operations.  

What will be the impact on providers?

A core value proposition of Medicare Direct – as with any other Medicare for All-related plan – is to leverage the buying power of Medicare to reduce costs. By inserting a plan in Exchange markets that relies on Medicare provider reimbursement rates, states can immediately and sharply reduce consumer premiums.  

This portion of the market represents a relatively small percentage of providers’ payor mix and thus should not have substantial financial implications for them. Providers will also benefit from an increase in insured patient volume and reduced bad debt. Payment modifications can be considered in rural areas and otherwise as needed to ensure quality of care and patient access are maintained.

Why are private, for-profit plans the best vehicle for this coverage?

The Medicare Direct approach combines the best of what government, non-profit, and for-profit plans have to offer the health insurance market. Leveraging private issuers eliminates the need to create a new state or federal program to administer this coverage and keeps any fiscal downside off of state governments’ books. Meanwhile, states can still reap the financial benefit of net savings generated by the program for their health care priorities, as noted above.

Importantly, a private, for-profit plan has the capacity to raise capital for start-up costs and risk reserves necessary to launch in the Exchange market. In the past, efforts to foster non-profit plans – most notably the ACA-initiated CO-OP plans – frequently failed because they could not access these sources of capital. This dynamic will also help foster a spirit of entrepreneurialism and innovation that makes the ACA’s Exchange marketplaces a uniquely American approach to expanding coverage.

How can we ensure the public interest will be served by these plans?

Medicare Direct plans must subject themselves to an unprecedented degree of transparency, cooperation, and compliance with state and federal regulatory bodies. From their beginning, plans will negotiate their management structure, board make-up, profit allowance, benefit design, provider reimbursement rates, and essentially all other aspects of their functioning with their respective state governments and Centers for Medicare and Medicaid Services (CMS). Profits would be limited to three percent at most, with any excess earnings returned to the state or plan enrollees. Direct plans should also maintain status as a B-CORP, a designation that requires companies to prioritize the public good alongside profits in their legally-binding charter documents.

Aren’t administrative costs for private plans much higher than Medicare?

Generally speaking, administrative costs for commercial plans are higher than traditional Medicare. These costs relate to advertising and other aspects of market competition that do not apply to the traditional fee-for-service Medicare program. Because this is a commercial Exchange context, those costs will apply regardless of how any plan entrant is designed. Relying on Medicare benefit and coverage policies will reduce these costs to some degree. Further, some private plan administrative costs are dedicated to managing and coordinating patient care in a way that traditional Medicare does not typically have the flexibility to do. This is one reason why, despite having higher administrative costs, commercial Medicare Advantage plans deliver coverage at approximately the same gross cost as traditional Medicare. The financial outcome for Medicare Direct plans should be comparable to that of Medicare Advantage plans.

Can this be done without Congress passing a law?

Yes. Existing authority under section 1332 of the Affordable Care Act allows states to institute alternative coverage mechanisms that would insure the same or more number of people for the same or less costs. This aspect of the waiver is especially important to allow states to capture the savings generated by Medicare Direct plans so they can reallocate them to increasing subsidies, reinsurance programs, etc.

Additional authority under section 3021 of the ACA, regarding the Center for Medicare and Medicaid Innovation, is also important because it allows CMS to require Medicare provider participation, which is vital to ensure Medicare Direct plans will aggressively lower costs while maintaining adequate access to care.

Why do this instead of “real” Medicare for All?

The Medicare Direct approach presents a viable, strong step toward the core goals of Medicare for All – universal coverage and reduced costs – without waiting for Congress to act. It creates a pathway for minimally invasive testing of this bold concept at the state level with the potential to expand the program further if it proves successful.