Raising the Medicare eligibility age is now a REALLY bad idea

This post is co-authored by Aaron Carroll and Austin Frakt.

We’ve written so many times on how raising the Medicare eligibility age to 67 is a bad idea that we hesitate to do so again. (See the FAQ.) But a recent revision by the CBO of federal savings it would generate compels us to do this one more time.

Implementing this option would reduce federal budget deficits by $19 billion between 2016 and 2023, accord to new estimates by CBO and the staff of the Joint Committee on Taxation (see Table 1). That figure represents the net effect of a $23 billion decrease in outlays and a $4 billion decrease in revenues over that period. The decrease in outlays includes a reduction in federal spending for Medicare as well as a slight reduction in outlays for Social Security retirement benefits. However, those savings would be substantially offset by increases in federal spending for Medicaid and for subsidies to purchase health insurance through the new insurance exchanges and by the decrease in revenues.

Do you get that? Phasing this in starting in 2016 could save $19 billion over the next 8 years. That’s less than $3 billion a year. That’s… insane.

Why isn’t it more? Well, once again, the more people you kick of Medicare, the more you get on Medicaid. That increases federal expenditures. More people will also need exchange insurance, too, which means more people needing subsidies. That will also increase federal expenditures. These expenditures reduce the savings to the federal government from the $63.5 billion it would have cost to cover the 65 and 66 year olds to only $23 billion in savings.

And we’re not even counting the increase to state expenditures for the added Medicaid, the increased cost to employers who have to provide insurance, the increased cost to all Americans in higher premiums for adding those elderly people to the private risk pools, or the increased out of pocket expenses to those seniors. (We covered these costs in prior posts.) If this was a bad deal before, it’s worse now.

The last time the CBO estimated the savings from increasing the Medicare eligibility age, they pegged the savings to the federal government at $113 billion over 10 years. The new report has the savings as much, much less. Why? It turns out the CBO made a bit of a mistake last time*:

CBO’s analysis highlighted two points. First, at ages 65 and 66, beneficiaries who enrolled in Medicare when they turned 65 tend to be in much better health—and thus are substantially less expensive, on average—than beneficiaries who were already enrolled upon turning 65 (because of disability or end-stage renal disease). Second, the many 65- and 66-year-old beneficiaries who are workers (or workers’ elderly spouses) with employment-based health insurance are less costly to Medicare, on average, than other beneficiaries at those ages.

Two things here. The first is more important. Some people who are 65 and 66 who are on Medicare have been on Medicare for some time. That’s because they have renal failure or some other major disability that qualifies them for Medicare before age does. It should go without saying that these people are way more expensive than your otherwise average 65- or 66-year old Medicare beneficiary. These people are also completely unaffected by raising the eligibility age. They’re not eligible due to age, but due to disability or renal failure.

It appears to us that in their original analysis, the CBO looked at average spending of all 65 and 66 year olds, including all of those extra unhealthy people. But they aren’t relevant here. We want to know how much will be saved by the new policy. So when you look only at people who are new to Medicare at 65 and those that were and then turn 66, the savings from raising the eligibility age is much, much less.

Additionally, some 65 and 66 year olds still get insurance from their jobs and only use Medicare as a secondary source of coverage. This is much, much cheaper for the program, too. Savings from them will be less.

Put these two things together, and the new estimate for federal savings is much lower than it was before. But all the non-federal costs (not in the CBO report but covered by us before — see links above) remain, as does the concern about the viability of the exchanges and the fact that Medicaid hasn’t expanded in all states. So if raising the Medicare eligibility age before was a bad idea (and it was), it’s an even worse idea now.

*There are some who will use this opportunity to attack the CBO and their analyses. We will not be among those people. The CBO does amazing work, consistently and often thanklessly. The fact that they found this mistake and corrected it – publicly – is to be respected, if not lauded.

@aaronecarroll and @afrakt

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