At first blush, increasing the eligibility age for Medicare sounds like a fiscal no-brainer.
Life expectancy has risen and the average 65-year-old can now expect to live another 20 years, five more years then when Medicare was started. Increasing the age at which people can receive Medicare from 65 to 67 would save $148 billion over the next 10 years, according to the Congressional Budget Office.
However, a closer examination of the consequences reveals any potential savings would be undercut by increased reliance on other federal or state assistance, higher insurance costs for businesses and individuals, and leave many Americans without adequate health coverage. Estimates predict that for every dollar the federal government would save from raising the eligibility age, costs to state governments and the private sector would increase by $1.10.
Insuring 65- and 66-year olds would cost employers an extra $4.5 billion in retiree health care costs in 2014 alone. States, already grappling with strained resources and climbing health costs, would face $700 million in new spending for the same period.
Moreover, adding would-be Medicare beneficiaries into the health care exchanges established under the Affordable Care Act would raise premiums for everyone else in the exchanges by three percent in 2014 because insurers who previously did not have to cover 65- and 66-year olds would likely have to pass on their higher cost to the rest of their pool.
By the same token, Medicare beneficiaries would face $1.8 billion in higher premiums because the younger and relatively healthier 65- and 66-year-old beneficiaries would be taken out of the program’s risk pool.
There would also be an impact in the job market, with more people delaying their retirements to hold onto employer-provided insurance. That would reduce opportunities for younger people to find work or advance in their current jobs.
Those 65- and 66-year olds unfortunate enough to be without employer coverage would likely be forced to do without insurance at all in many cases. Even with the new health care exchanges, half of 65- and 66-year olds would have incomes deemed too high to be eligible for subsidies and would face premiums as high as $10,000 to $12,000 a year for an individual, and twice that for a couple, beginning in 2014. The majority of those who do find coverage would incur an estimated $2,200 more in out-of-pocket costs per year including premiums and cost-sharing.
It’s not Medicare that is broken; it’s the whole U.S. health care system. Indeed, without Medicare, the whole system would have collapsed long ago.
That’s why it would make greater sense for the U.S. to lower the eligibility age of Medicare instead of increasing it. Letting citizens 60 years or older buy into Medicare coverage (at slightly above the full cost of coverage) would aid the program by bringing in a larger and healthier pool of beneficiaries to help fund the program. Rather than forcing many employers to pay increasingly expensive private insurance for their workers, as raising the eligibility age would require, businesses would benefit from lower premiums because even full-priced Medicare would cost substantially less than comparable private insurance.
While advocates of more private enterprise hate to admit it, Medicare is a more efficient means of delivering health insurance coverage than private alternatives. Why not expand a more efficient system rather than forcing more Americans into the inefficient and overly-expensive private insurance market?
Such an approach generates a new revenue stream for Medicare, extending its life. Rein in costs at the same time by allowing Medicare to negotiate for lower drug prices.
These are alternatives that can fix Medicare for the long term and bring tangible benefits to the vast majority of Americans at the same time. Raising the eligibility age simply shifts the costs currently paid by the federal government elsewhere, and reduces efficiency at the same time. It’s no solution at all.
Raising the eligibility age of Medicare simply to enshrine more tax cuts for upper income Americans is a disservice to the overwhelming majority of Americans. President Obama and Congress should reject the proposal.