Raising the eligibility age for Medicare, as some in Congress have suggested, is unlikely to produce any significant savings. Worse yet, it could shift billions of dollars in expenses to employers, Medicaid, young people, state governments and hospital emergency rooms.
Moreover, it could force some to decide to work longer to retain health-care coverage through employers, eliminating opportunities for younger people to find jobs. That scenario is already a key reason for our slow-recovering economy.
There are better options for Congress to pursue that would sustain Medicare and provide real savings in the entitlement program. One option would be to give Medicare the ability to negotiate lower drug prices with pharmaceutical companies. Another would be to institute a sliding scale that would determine Medicare benefits based on income and the ability to pay for health insurance.
Raising the Medicare age to 67, as House Speaker John Boehner proposes, will boost health care costs across the spectrum, due to the way insurance rates are calculated. By steering 65- and 66-year-olds into the new exchanges created by the Affordable Health Care Act, health insurance costs would rise for all who participate because those markets will be serving a less healthy, more costly population. The Kaiser Family Foundation estimates it will add an average of $2,200 per person for health care coverage.
By the same token, keeping the same age group out of Medicare Parts B and D will increase the costs for remaining Medicare beneficiaries, who on average will be less healthy and costly.
Giving Medicare the ability to negotiate lower drug prices could provide genuine savings for the government. The Department of Veterans Affairs already achieves significant discounts on generic and brand-name drugs by negotiating directly with manufacturers. A study by the Congressional Budget Office (CBO) found that, on average, the VA pays only about 42 percent of the suggested list price for brand-name drugs. A study by Families USA underscored the same point. According to the study results, the lowest VA price is lower than the lowest Medicare prescription drug plan price for 19 of the top 20 drugs used by seniors.
Other federal departments also benefit from deep discounts on prescription drugs through price negotiation. For example, drug prices negotiated through the Federal Supply Schedule are 53 percent of the average wholesale price, according to the CBO.
Many in Congress pointed out this flaw when the Medicare Part D plan for drugs was adopted, labeling it a major giveaway for pharmaceutical companies. If the government is serious about reducing costs in entitlement programs, granting Medicare the same rights to negotiate lower prices is a logical place to start.
Means testing could also provide a huge savings, but is more controversial. Liberals have traditionally resisted the idea of applying means testing to Medicare.
Their concern has some legitimacy. Means-testing could undermine the broad, public support for Medicare, if it is seen as more a welfare program than an entitlement.
But Social Security has successfully used means testing by applying a progressive benefit formula designed to ensure that benefits replace a larger proportion of pre-retirement earnings for people with low average earnings than for those with higher earnings. That fact has not undermined support for the program, and a similar approach could boost Medicare’s finances.
The cost of Medicare, which lacks a parallel formula, is rising more rapidly than the cost of Social Security, thanks to galloping health-care inflation. One of the best ways to contain escalating costs is to limit benefits for those who don’t need to rely on government aid for health-care coverage. Why should a billionaire like Michael Bloomberg have his health care heavily subsidized by taxpayers at a time when many average Americans are struggling to afford coverage?
Applying means testing to Medicare and giving the program the ability to negotiate discounts on drugs could produce real savings in the entitlement program and would be far more productive than raising the eligibility age.