• Did you know raising the Medicare eligibility age will cost America money?

    Yes, cost it money. Let me explain.

    If we drop 65 and 66-year-olds from Medicare, obviously that will mean the federal government is going to spend less on the program overall. They’ll save something to the tune of about $33.1 billion. But, they’ll be losing the premiums that those people paid for Medicare (about $9 billion), so that means the overall federal Medicare savings is $24.1 billion.

    So far so good, right? Sounds like a winner. That is, of course, if you ignore all the extra spending we’d need to do because of this. Here we go.

    Lots of those 65 and 66-year-olds will need Medicaid. That will cost the federal government about $8.9 billion. Lots of those seniors will go to the exchanges for insurance. That will cost the federal government about $9.4 billion in subsidies. Oh, that Medicaid will cost states too, about $700 million. The 65 and 66 year olds getting  insurance from their employers will cost them about $4.5 billion (they’re expensive). As I’ve reported before, Medicare premiums will go up ($1.8 billion), and exchange premiums will go up ($700 million). And, there will be increased out-of-pocket spending by the 65 and 66-year-olds themselves for premiums, deductibles, co-pays, etc. Add it all up. To save the federal government $24.1 billion, we need to spend $29.8 billion.

    In other words, this will cost us $5.7 billion. Here it is in chart form (click to enlarge):

    Now you can shift things around between “government” and “private” spending, but the end result is the same. After all, government spending will be paid for by all of us in taxes anyway. The bottom line is that it will cost America $5.7 billion to raise the eligibility age to 67. It will be paid for by everyone, including employers, workers, taxpayers, and even the elderly. We’ll all pay for those things in the “new expenses” line.

    We might as well just leave the eligibility age the same and tax everyone for an additional $5.7 billion. It would cost us just as much, and we’d get the bonus of not actually harming seniors or increasing the number of uninsured, to boot.

    @aaronecarroll

    Want to read more? Try this KFF report and this CBPP post.

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    • Excellent post, but what is the argument that net aggregate Medicare premiums will go up? I understand and agree with the argument that average Medicare premiums and average per recipient expenses will go up if the eligibility age is raised, but that is very different from saying the net total premiums will go up for Medicare. The latter seems questionable. There are Medicare premium savings from 2 fewer years of Medicare eligibility for each person that should more than offset the additional premium per year once on Medicare (just looking at Medicare premiums, not total premiums and health care costs), other things equal.

      The only argument I saw is that other things are not equal, and keeping some people uninsured 2 years longer will make them less healthy and this effect will outweigh, over a lifetime and spread over all recipients, any Medicare premium savings from having people not receive benefits those two years. Is that where your $1.8B comes from? I’d like to see this argument in more detail to justify that number (I did follow your link but didn’t find anything to justify the number….maybe I’m a bad link follower).

      Of course, even if you take out that orange bar for increased Medicare premium cost, the overal point stands.

    • There’s a key assumption in that there is no change in labor force activity. Historical evidence, such as raising the SS retirement age, indicates that there is a shift in labor market activity. People do work longer when the retirement age is changed.

      Furthermore, isn’t the life expectancy change illustrated by Egglestonand & Fuchs (AEA summer 2012 the New Demographic Transition: Most Life Expectancy Gains Now later in Life)

      You are right that most of the historical gains to life expectancy are due to changes closer to youth. But that’s not the case anymore.

      From Eggleston/Fuchs:
      most recent gains to life expectancy are based on over 65..

      • at the same time the competing force you don’t consider are advancemens in the field of medicine. medicine and technology has evolved so much more potently in recent years so who knows how that trend will play out

    • Using similar analysis, would it save “America” money to lower the Medicare eligibility age? If so, at what age would it no long save “America” money?

      • I know you’re being sarcastic, but the answer would be when there was Medicare-for-all. Yeah – that would be cheaper.

      • not necessarily but maybe 75 while offering the same retirement benefits might balance the solution. im interested in your response

    • Aaron – I was going to pose the same question as ‘N’.

      You note that making Medicare the monopsony payer for all ages will cost less. But is it the desired result?

      As an analogy, what if we elected someone to nationalize the digital media industry in the 90’s. The government could become the sole buyer of CDs, and with that buying power, CDs would be cheaper than ever before.

      The artificial cheapness would have a tremendous cost to innovation: fewer companies would have incentives to create the next generation of digital media, which we now enjoy (as CD drives in computers are being rapidly phased out of production ..).

      I know health care “is complex” and so perhaps my simple analogy falls short of your expectations, but do you see any parallels?

      • yes i do and you make a valid point which i am willing to absorb into the calculation up to the likelihood that the event occurs. i give it 30-40% shot because of the likely hike in individual ventures competing against that figure

    • Aaron thank you for the post.

      I just wanted to make one comment around the increased out-of-pocket spending that would occur for beneficiaries in other plans relative to Medicare, which is that arguably Medicare beneficiaries today aren’t exposed to enough cost-sharing for certain Medicare services.

      If you believe that Congress is likely to increase Medicare cost-sharing for certain services, or perhaps enact Medigap reform it could reduce, eliminate, or even reverse the net effect on out-of-pocket spending you cite.

      Best,
      Drew