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.


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