How raising age for Medicare would affect seniors

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News Analysis

(MoneyWatch) As part of the "fiscal cliff" negotiations, one controversial proposal for cutting entitlement spending and reining in medical costs for seniors is to raise Medicare's eligibility age from 65 to 67. Yet while it might seem obvious that restricting eligibility for these federal health care benefits will hold down future Medicare costs, that approach could have unintended, and unforeseen, consequences.

We have seen a range of ideas for reducing Medicare spending in recent years, including plans from the Obama administration, Simpson-Bowles deficit-reduction commission and Rep. Paul Ryan, R.-Wis., among others. These proposals would phase in the increase in the eligibility age over periods of up to 25 years and exempt from changes people currently in their mid-50s or early 60s. As a result, the financial impact of such proposed changes will only be realized years down the road.

Still, as President Barack Obama and House Speaker John Boehner try to hammer out a fiscal deal before Bush-era tax breaks expire and government spending cuts take effect in January, the debate continues to rage over whether up the age threshold for Medicare.

Arguments for raising the Medicare age

In looking at the costs of the Medicare program alone, it's obvious that if 65- and 66-year-olds aren't eligible for coverage, then Medicare will have lower costs compared to what they'd be if these people were covered. For example:

  • The Congressional Budget Office estimates that long-term Medicare spending would decline by about 5 percent under such a change

  • The Kaiser Family Foundation projects that raising Medicare's eligibility age to 67 in 2014 would save the federal government $5.7 billion

  • In a recent editorial in The Wall Street Journal, Maya MacGuineas, president of the Committee for a Responsible Federal Budget, estimates that if such a policy were phased in between 2014 and 2027, it would save the federal government almost $150 billion through 2022 (net of new spending to help seniors get coverage from other sources).

Advocates for this approach argue that it makes sense to increase Medicare's eligibility age to correspond with the scheduled increase in age, to 67, for people to collect their full Social Security benefits. People are living longer, the argument goes, so it's only fair that the Medicare eligibility age rise accordingly.

In defense of raising the eligibility age, supporters also say that uninsured people ages 65 and 66 would be able to buy insurance through health care exchanges starting in 2014, as required by the recently enacted Affordable Care Act (known more commonly as "Obamacare"). Low-income seniors can receive subsidies for coverage under the ACA or are eligible for Medicaid.

Arguments against raising the Medicare age

Here's where the law of unintended consequences kicks in. If Medicare raises its eligibility age, the medical costs for seniors ages 65 and 66 don't disappear -- they're simply shifted somewhere else. Consider:

  • Costs would increase for employer-sponsored plans for both government and private employers because they would now have to cover a bigger share of medical costs for employees or retirees ages 65 and 66. According to the Kaiser study, if Medicare's eligibility age were increased in 2014, the $5.7 billion in net savings to the federal government would be offset by an estimated net increase of $3.7 billion in out-of-pocket costs for 65- and 66-year-olds, and a rise of $4.5 billion in employer retiree health-care costs.

  • Medicare Part B premiums, which are based on expected average costs per beneficiary, would increase. If you remove the healthiest beneficiaries from the group (people ages 65 and 66), the average costs for the remaining population would increase. Kaiser estimates that Medicare premiums would increase by 3 percent for remaining Medicare participants.

  • Costs for Medicaid and other programs that cover low-income elderly people would increase because they would have to cover people ages 65 and 66.

  • Studies have shown that many uninsured seniors delay receiving medical treatment until they're eligible for Medicare, at which point their conditions may have worsened, requiring more extensive interventions that increase costs and related premiums. Raising the eligibility age would only exacerbate this phenomenon.

  • Many people defer retiring until they can get Medicare coverage, so employees would be incented to delay retirement until age 67 instead of age 65. This could contribute to unemployment rates among younger workers if turnover slows even more among older workers.

Critics of the idea to raise the Medicare eligibility age point out that it's still uncertain if seniors would be able to obtain or afford coverage in the state-run health care exchanges under the ACA. One study indicates that raising the age threshold could increase the number of uninsured by 435,000 even if the ACA were to be fully implemented. Another article estimates that more than 1,200 seniors ages 65 and 66 would die each year as a result of increasing the number of uninsured, since people without health insurance tend to forgo or delay receiving critical medical treatment..

In addition, the Supreme Court's ruling on the ACA last summer made optional the law's requirement to expand Medicaid to include people who earn up to 133 percent of the poverty level (defined as annual income of $14,856 in 2012). So far, nine states have indicated that they won't expand Medicaid coverage. As a result, seniors in those states may not be able to obtain coverage through Medicaid.

Finally, opponents of the age hike point out that it is mostly middle-class and affluent people who are living longer, bypassing lower-income and blue-collar workers. Raising Medicare's eligibility age would disproportionally harm these seniors.

Interestingly, in her Journal op-ed arguing in favor of raising the Medicare age, MacGuineas acknowledges that Medicare costs less than private insurance and concedes that shifting citizens from Medicare to private insurance would  increase costs. This is just one instance supporting the notion that cost controls implemented recently by Medicare are working.

Competing views

As these dueling arguments demonstrate, there are two broad perspectives on Medicare:

1. Medicare is a retirement program. This perspective supports increasing Medicare's eligibility age, underscoring that people are retiring later in their lives and living longer.

2. Medicare is a program of universal medical coverage for seniors, regardless of whether or not they're working. This perspective supports keeping the Medicare eligibility age at 65, due to lower program costs and the social goals of taking care of our senior citizens.

Making the fight over Medicare even more complex is that it is not only about these competing visions. More fundamentally, it is rooted in an age-old debate in this country over the proper boundary between government and private enterprise. That suggests the battle over Medicare and other social services geared to America's seniors is likely to continue no matter what fiscal deal Washington thrashes out.

  • Steve Vernon On Twitter»

    View all articles by Steve Vernon on CBS MoneyWatch»
    Steve Vernon helped large employers design and manage their retirement programs for more than 35 years as a consulting actuary. Now he's a research scholar for the Stanford Center on Longevity, where he helps collect, direct and disseminate research that will improve the financial security of seniors. He's also president of Rest-of-Life Communications, delivers retirement planning workshops and authored Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck and Recession-Proof Your Retirement Years.

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