Progressives are criticizing Majority Leader Harry Reid (D-NV) for including language in the merged Senate bill that would allow insurers “to place annual limits on the dollar value of medical care, as long as those limits are not “‘unreasonable’.” While it’s unclear how or why the language made its way into the final legislation, Reid’s explanation is not too convincing:

Hill sources explain that this was inserted because CBO said premiums would “go through the roof” if insurers couldn’t cap benefits. The official quote from Jim Manley, Harry Reid’s spokesperson, says much the same thing. “We are concerned that banning all annual limits, regardless of whether services are voluntary, could lead to higher premiums,” he explained. “We continue to work with experts on how best to accomplish our goals of preventing insurance companies from imposing arbitrary coverage limits while providing the premium relief American families need and deserve.”

This doesn’t make too much sense, particularly because the House bill managed to avoid use “unreasonable” language without causing premiums to soar. To be fair, the House limits unnecessary care by using “medical management” in another section of the bill. The Senate bill was likely trying to get at the same thing, but did so in the broadest terms possible. Compare:

The House bill deploys the far narrower “medical management” language on page 109. “Nothing in this Act shall be construed to prohibit a group health plan or health insurance issuer from using medical management practices so long as such management practices are based on valid medical evidence and are relevant to the patient whose medical treatment is under review.”

The Reid language goes beyond this narrow provision and should be changed. Encouraging plans to manage unneeded care is one thing, allowing them to establish so-called ‘reasonable’ limits is another.

Only a small number of lawmakers are familiar with the intimate details of the compromise and most Democratic senators have “shied away from explaining or defending their Medicare proposal, on the ground that it was being analyzed by the budget office.” But in in the last few days, key moderate lawmakers have expressed newfound skepticism about the plan.

While arguments about Medicare underpaying providers and cost shifts to Americans in private coverage are largely overstated, concerns about the viability of the buy-in are certainly valid. For the Medicare buy-in to work as intended, policy makers must ensure that it doesn’t becoming a dumping ground for the sickest Americans.

Here is what we know so far:

- The new Medicare option would be available only to individuals, not to families.

- People 55 to 64 would receive the same benefits as people in the traditional Medicare program.

- Medicare premiums for people under 65 would differ from those paid by people 65 and older, and the two parts of the program would be financed separately.

That last one is key. Democrats are pulling the rug from under the “you’re adding more people onto a sinking ship” crowd, but they’re not solving the fundamental problem of the program only attracting the sickest individuals.

Currently, the majority of adults between 55 to 64 are enrolled in employer sponsored coverage, but 13% are uninsured. That 13% is “more than twice as likely to be in fair or poor health than those with private, non-group coverage” and more than half of that 13% “have incomes below 200 percent of the federal poverty level (about $29,000 for a family of two in 2008).” They are sicker and they are poorer and if the Medicare buy-in is unsubsidized between 2011 and 2014, the overwhelming majority won’t be able to afford it. Only the sickest Americans would be willing to pay for Medicare buy-in, transforming it into just another small high-risk pool for older people.

A 2002 analysis of a different Medicare buy-in proposal concluded that without subsidies, the number of uninsured adults ages 55 to 64 would decline from about 10 percent to 9 percent. But, “if Medicare buy-in premiums were subsidized, with more generous subsidizes provided to those with low incomes, the share of uninsured adults ages 55 to 64 would decline by nearly half, from 10 percent to 6 percent.” The impact of the subsidy would actually decrease “as income per eligible person decreased and lower-income people would need a larger subsidy to induce them to enroll.” “In effect, subsidies may be necessary to encourage healthier people and those with low incomes to enroll in a Medicare buy-in.”

In other words, in order to avoid a situation where the buy-in attracts a small number of very sick people between 2011 and 2014, policy makers will have to consider subsidizing the program (or some other way of lowering premiums like not charging administrative fees or freezing premiums from year.) The Senate bill has about $150 billion dedicated to deficit reduction and it could dedicate some of that money for extra subsidies, but that may not be enough to provide any real affordability assistance. If they want to make this work, they’ll have to lower the cost of the program.