CBO: Raising Medicare age to 67 would save $148 billion over decade

Increasing the Medicare eligibility age would prompt more Americans to delay retirement, but it also would lead to higher out-of-pocket costs for enrollees.

By Charles Fiegl amednews staff — Posted Jan. 23, 2012

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Raising the Medicare eligibility age would extend the life of the program by keeping more people in the work force, but it also would affect seniors by raising out-of-pocket costs, says an analysis by the Congressional Budget Office.

Over the past year, some lawmakers have proposed plans to increase the Medicare eligibility age from 65 to 67 as a way to strengthen the financial future of the entitlement program. The White House also has been open to changing the eligibility age, with President Obama reportedly floating a change to eligibility requirements as a possible concession to achieve Republican support for a larger federal budget deficit reduction package during the summer of 2011.

The CBO published a Jan. 10 brief on the Medicare eligibility question. Raising the age to 67 would lead to fewer Americans being eligible, higher premiums for those who are in Medicare and a net reduction in overall spending, analysts said.

Medicare would see higher premiums because 65- and 66-year-olds, who generally are healthier than older beneficiaries, would not be subsidizing care for others in the program through premiums and deductibles. About 5.4 million members of this age group would look elsewhere for coverage or go without insurance until they reach the eligibility age. CBO estimates that about 5% would remain uninsured.

Despite the healthier enrollees no longer being part of the pool, Medicare spending would be reduced by $148 billion over 10 years, and net program spending would be about 5% less than current projections by 2035.

The proposal is worth thinking about implementing when coverage expansions under the national health system reform law go into effect, said Paul Van de Water, PhD, an economist and senior fellow with the liberal Center on Budget and Policy Priorities in Washington. The reform law will establish health insurance exchanges in states, through which 65- and 66-year-olds could purchase coverage at reasonable rates.

However, the future of those exchanges is uncertain, Van de Water said. Exchanges and federal subsidies for low-income individuals would not become available until 2014 -- and only if the law survives court challenges and Republican opposition.

Costs would shift to beneficiaries

Raising Medicare's age of eligibility also would increase overall costs to beneficiaries, Van de Water said. He cited a July 2011 Kaiser Family Foundation analysis that calculated out-of-pocket costs and premiums wouldincrease. About 3.3 million people would pay an average of $2,200 more for premiums and other spending.

These patients could buy coverage from private plans, which generally pay more for physician services when compared with Medicare rates, said Chapin White, PhD, a senior health researcher with the Center for Studying Health System Change, a progressive policy research organization in Washington. "Sixty-five- and 66-year-olds would pay more for their care. It would be a big transfer from Medicare beneficiaries to physicians and hospitals, with the federal government coming out unaffected either way."

State Medicaid programs also likely would experience an increase in enrollment, White added.

Reforms under the health law would make raising the eligibility age easier, said Joe Antos, PhD, the Wilson H. Taylor Scholar in Health Care and Retirement Policy for the American Enterprise Institute, a conservative think tank in Washington. Those seniors without coverage from a previous employer could buy insurance more easily on an exchange than on today's open market.

"The real motivation is to have longer work lives," Antos said. "That was clearly the intention when Congress increased the age for Social Security eligibility in the 1980s. Have them stay on the job longer, pay more into the Treasury, pay more payroll and income taxes."

Concept gaining some ground

The American Medical Association has adopted policy that supports reforms that strengthen the Medicare program, including restructuring age-eligibility requirements to match the Social Security benefit.

Lawmakers changed eligibility requirements for Social Security benefits during the 1980s. The full retirement age for Social Security benefits gradually is being increased to age 67, which will become the retirement age starting in 2022 for those born in 1960 or later.

Raising the eligibility age for Medicare as well would increase the size of the work force and boost the gross domestic product by 0.1%, according to the CBO report.

Sens. Joseph Lieberman (I, Conn.) and Tom Coburn, MD (R, Okla.), in June 2011 proposed a plan that would increase the Medicare eligibility age by two months at a time beginning in 2014. By 2025, the eligibility age would reach, and remain at, 67. Savings realized under the plan would be used to prevent Medicare physician payment cuts for three years.

The health reform law would allow for those who are not yet 67 to buy affordable coverage that they otherwise would have received from Medicare, the senators' plan states. But the eligibility age change would be rolled back if the reform law were repealed.

Patient advocacy groups have opposed such policies. In response to the proposal from Lieberman and Dr. Coburn, AARP warned that increasing the eligibility age would shift costs to older seniors.

"We agree people in Medicare deserve the same out-of-pocket maximums that Americans in the private insurance market will soon have,and we appreciate the senators' efforts to stabilize the physician payment system in Medicare," said AARP Executive Vice President Nancy LeaMond. "However, we believe the right way to strengthen Medicare is to improve the quality and lower the cost of care throughout the health care system."

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Lifespan drives Medicare eligibility debate

View in PDF

Click to see data in PDF.

In 1940, seniors turning 65 could expect to live only another 14 years. In 2010, those reaching eligibility age for Medicare could expect to live another 20 years -- and spend about 30% of their adult lives in retirement.

Life expectancy for those turning 65 in the given year
Year Men Women
1940 77.7 79.7
1950 78.1 81.2
1960 78.2 82.4
1970 78.8 83.5
1980 79.7 83.8
1990 81.0 84.3
2000 82.5 85.0
2010 83.6 85.7
2020 84.3 86.4
2030 85.0 87.0
2040 85.6 87.6

Source: Life expectancy, Actuarial Publications, Social Security Administration (link)

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