• No matter how you slice it, raising the Medicare age induces a cost shift

    Adrianna McIntyre sounds a familiar theme, but in a new context.

    [Moving] 65-70 year olds from Medicare into private insurance populations will make those [private insurance] populations, in the aggregate, more expensive. Some of these people are bound to end up in the exchanges, and the ACA has a provision designed to limit age discrimination there; on the exchanges, insurance companies can only charge the old folk three times what they charge us young’ns (which I discussed a few weeks ago). This constraint was never meant to account for members of the 65+ crowd being pushed into the private insurance risk pool. When the insurance companies recalculate to account for the additional medical expenses these seniors would bring, it’d likely raise premiums across the board.

    The new context is that McIntyre is responding to a clever proposal by Yuval Levin to raise the age of Medicare eligibility from 65 to 70, but only for wealthier individuals. It’s a reasonable way to address the problem that raising the Medicare age for everyone disproportionately hurts those of lower means. But before one takes this to the bank, one has to cost out all the implications. As McIntyre suggests, it is a near certainty that there will be cost offsets. Some will hit the government, like the exchange subsidy cost. Some will hit individuals, like increased premiums in all non-Medicare risk pools, whether exchange- or employer-based.

    What’s crucial is that health and the spending it generates is not the same thing as wealth (duh!). So, moving wealthy people out of Medicare still shifts their spending. That spending is higher per person than that for the younger individuals in the pools to which the would-be Medicare beneficiaries are shifted.

    What’s likely spared is Medicaid, I think. We’re talking about shifting wealthy individuals out of Medicare eligibility. If wealth is accumulated assets and not income, it is still possible some of these folks could be Medicaid eligible under the new rules, though only in states that adopt the expansion. Under the expansion, anyone — independent of assets — is eligible if their income is below 138% of the federal poverty level (133% net a 5% income disregard). However, I believe it is the case that if you’re in a population that would have qualified under the old Medicaid rules — and the elderly are — then the old asset tests still apply. Do I have that right? If so, Medicaid is spared any cost shift. If not, the shift is on!

    In any case, the cost shift to the exchanges is a result of the modified community rating rules to which McIntyre refers. The obvious objection by Levin might be that we shouldn’t have community rating, modified or otherwise, in the first place. That’s another debate though, and for the moment, it’s settled. The law is on the books and I see no clear sign of it being altered in this regard.

    Nevertheless, I suppose another option here is to carve out the 65+ population in the exchanges and permit insurers to charge them their actuarially fair premium, sparing the rest of the pool the expense. (This doesn’t apply to employer plans though.) It’ll be a steep price. Expect a lot of pushback from people of means. The history of sticking higher costs to wealthy Medicare beneficiaries is, well, interesting.

    Bottom line, someone needs to nail down the specifics and run the numbers. We should withhold judgement until we see them.

    UPDATE: Rearranged some paragraphs for more logical flow.

    @afrakt

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    • Two points. One, for those over age 60, it’s health insurance hell. That ACA permits premium discrimination against me because I’m nearly old was a cost-saving measure: it substantially reduced the cost of subsidies for the (mostly young) uninsured. I’m nearly old and more likely to become sick as compared to someone age 25; but I’m far less likely to become sick than someone with cancer or diabetes regardless of her age. Why single out the nearly old for discrimination, age being no less a preexisting condition than cancer; indeed, I don’t smoke and am not overweight, but insurers are allowed to discriminate against me to offset the lower premiums they are allowed to charge someone who does smoke or is overweight,, or has cancer, diabetes, or other chronic disease. Two, if the goal is to keep Medicare, then align the interests of everybody over age 65, including the middle class and the wealthy. If only some (i.e., the non-wealthy) are eligible for Medicare, it will break the bond among seniors, and be the first step to eliminating Medicare. Rather than raising the eligibility age, simply charge wealthy beneficiaries higher premiums or co-pays.

    • I have a really hard time seeing that private insurance for a risk pool of 65 to 70 year olds will be affordable, even by the wealthy. Perhaps the Mitt Romneys of the world will be able to afford it, but most of the people in the top 5% work for their income and if the healthy 65-70 yos stay working on their employer’s insurance, they pool will become very expensive, indeed.

      We are an extraordinarily wealthy nation. If we didn’t waste our money fighting wars in countries which we don’t understand,aren’t appreciated, and don’t win, we could afford to cover every American’s health care.

    • -Seems like making health insurance premiums 100% deductible for those who are between 65-70 but too wealthy for medicare would be one way to help get a provision like this through the sausage factory.

    • Having served on a school board, I have seen what happens to group insurance premiums when an employer keeps on covering persons over 65. On an experience-rated plan that I helped supervise, a cascade of cancer and heart claims caused premiums to rise to $12,000 per person and the district had to drop health insurance.

      A neighboring district in Minnesota had a long and painful strike, when the administration tried to control the cost of health insurance by excluding the retirees.

      Also note that even under the ACA, premiums that can be 3 times higher for the older person could mean a premium of $12,000 for non-Cadillac coverage.

      In theory it is easy to understand why we should consider raising the eligibilty age of Medicare. Life expectancies have increased a lot since 1965, but the starting age has not. An average person might now spend 15-20 years on Medicare, which was certainly not anticipated when the law was passed.

      A better solution would be to raise taxes as life expectancy increases. I know of no other way to finance our longetivity.