Raising The Medicare Age Would Save Money, But Ultimately Cost More


There’s a useful piece in the WSJ this AM on some of the costs and benefits of one the entitlement cuts that has been raised in fiscal cliff discussions: raising the Medicare eligibility age from 65 to 67.The savings, according to the piece, amount to about $150 billion over 10 years. 

But you’ve got to net out a number of costs against that figure.

– Some seniors will work longer— that’s already occurring, of course — and remain on their employer’s plan.  Since older workers are relatively more expensive to insure, this will push up employers’ costs of coverage.

– A new source of coverage for 65-66 year-olds will be the health care exchanges set up by the Affordable Care Act in 2014.  But there’s a cost here too — coverage for family members with incomes up to 400% of poverty (around $90,000 for a family of four) includes a government subsidy.

– Since the exchanges must cover these older persons at “community rates,” their move from Medicare to private insurance means private prices in the exchanges will vary less by age than they do now.  According to a Kaiser Family Foundation study, that will drive up premiums for everyone in those exchanges by 3% (for young adults, by 8%).

– Some 65-66’ers will be uninsured which raises the incidence and costs of uncompensated care.

The piece leaves out an important point that should also be noted in these discussions about raising the retirement or eligibility age for social insurance: while older persons are living longer on average, there’s a significant gradient by income, with life expectancy up only slightly among older men in the bottom half of the income scale. 

Unfortunately, healthy, wealthy, ageing policy makers often take themselves to be the sole referenced people here…they are not.

So does this mean Medicare savings shouldn’t be on the fiscal cliff bargaining table?  No, though I wouldn’t fool around with the eligibility age. 

The President offers up about $280 billion (over 10 years) of cuts in his budget, including modified payments to providers, cost sharing with higher income beneficiaries, and lower drug costs in Medicare Part D.  That’s a fine place to start.

And a fine place to stop, for now.  The real savings in health care will come from cost control measures enacted in the Affordable Care Act but nowhere near fully implemented, and it’s just too soon to know if they’re working. 

We must give them a chance — early indicators are positive, though they may be conflated with recession-induced (i.e., temporary) dips in demand.  If they fail to control costs, then it’s back to the drawing board.  But now’s the time to watch and evaluate, not to reduce access to what is a highly efficient, effective form of health coverage for the nation’s seniors.

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