• 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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    • So the argument here is pretty much that $23B in savings over that time frame is just not worth it because we’ve created a new entitlement which these people will be a part of now if they’re not on Medicare yet. And, of course, we will have to subsidize that entitlement as well. Seems to me that $23B in savings is always a good idea. Another good idea would be means testing. Anybody who is serious about entitlement reform should agree, if they don’t, then they are simply not serious.

      We can create enough entitlements that would eventually make reforming the current ones more costly/less worth doing if they’re designed in the same manner as Obamacare vis a vis Medicare/Medicaid. I don’t think that is anyone’s best interest though. This post is more of a warning that piling entitlements on top of entitlements is extremely dangerous when you have massive debt and deficits.

      • I wonder how much could be saved if we shipped people who make everything so difficult for the rest of us to an island with no taxes or services, since that’s apparently what they would prefer. If it’s even $1, let’s do it. After all, “seems to me that $1 in savings is always a good idea.”

      • +1 to db. It is a small saving hardly worth discussing on a wonky blog like this but that does not mean that it is not worth doing. Might as well do it along with some more significant stuff.

      • Ditto Floccina; and for context, it has been estimated that we could have saved about the same amount in TWO WEEKS if we had avoided the recent government shutdown.

      • ” Seems to me that $23B in savings is always a good idea.”

        The problem is that it’s $23B in savings *to the government, not to the economy as a whole*. Moving all those 65- and 66- year-olds into private insurance wouldn’t save Medicare very much, since they would be its youngest and healthiest, but it would drive up private insurance premiums substantially because the new customers would be among the oldest and sickest in private insurance. The 65-year-olds would have to pay higher premiums than before, and so would the 40- and 50-year-old existing customers of those private companies. All of these added premiums would add up to much more than the $23B the government saved, which means the average American taxpayer would be worse off than before.

      • “Entitlements” are preferable to profit-making health insurance schemes which spend part of the health care dollar on advertising, outlandish CEO pay, and on rejecting claims. Medicare spends close to ALL of the health care dollar on health care. What a concept! Medicare is different from and better than the UK health service. It is publicly funded but the people providing the service are, with the exception of the VA, privately employed.

        There are areas of human endeavor (education, health care, prisons) which cannot be shoe horned into the dominant business model without creating serious distortions or reductions in the quality of the product. And,a single payer health care system for everyone in the US, i.e. Medicare for All, would save on the amount of GNP spent on health care. The 100% would be totally covered and the 1% could spend as much as they liked on “cadillac” profit-making supplemental insurance.

      • Absolutely. Let’s make people spend their savings for an extra couple of years, on healthcare at the higher-overheads prices of the private insurance, instead of Medicare’s 2% overheads. Maybe they’ll die earlier because their savings run out. Maybe they’ll qualify for Medicaid sooner since they burned through two more years of their retirement savings, if they had any, savings they had planned to use for rent, food, you know, the little things.
        If it’s 2013 now, and this becomes a 2016 change, then folks who’d be most affected have no time to prepare for it.

        As for means testing, this is just another way of saying “let’s turn it into another welfare program we can vilify, like food stamps or unemployment.” We already test for it: how old are you? 65? you qualify.

        Or were you using a different meaning of the word “mean”? I think that’s where you were going, wasn’t it? That’s pretty mean of you, to think anyone who doesn’t agree with you isn’t serious. Call again when you’re 65, hon.

      • I bet ya’ can’t sleep at night…just worryin’ about those ” massive debts and deficits “…It just weighs on your mind….causin’ frets and woe..pacin’ the floor..sighin’ deeply…uh-huh..

      • We have the money to waste on overpriced, overdiagnosed healthcare for every single citizen, but we’re spending it on the Middle East.

        Frankly, giving every American over 50 their private nurse would be a more effective and efficient means of delivering healthcare than the effectiveness and efficiency of our military efforts to turn the Middle East into a region of pro-American democracies.

      • @db “Seems to me that $23B in savings is always a good idea.”

        Then you must be in favor of making cuts to Defense spending. For example, the same amount can be saved by simply eliminating the Predator Drone program (although it will take twice as long — $2B annual savings, instead of 3 to 4 $B annual for the Medicare cut).

        I look forward to hearing your impassioned call to stop sending checks to the Military-Industrial Complex on the basis that “$23B in savings is always a good idea”.

      • There are two very strong arguments against needs tests, it seems to me.

        First, the amount of governmental intrusion implied is humungous. It’s not an objective thing like a theoretical income tax, which is problematic enough: it’s a subjective test being made by a bureaucracy about supposed **needs**. Bureaucracies are bad enough with facts; who needs them dreaming up moral notions?

        Second, even if one had a clear notion of what “need” means, and another clear notion, how to measure it, you would then have tremendous problems around the margin. People who missed closely would suddenly be much worse off than people only slightly poorer than themselves. The feelings of resentment, envy, and anger that one is creation are sure to be huge — and just as difficult to quantify as “need.” :-)

        The sensible answer is the clawback: you avoid the notion of who’s entitled and who isn’t. You just make a benefit available to everyone — like, e.d. sick bay on an aircraft carrier — and people with lots and lots of money get to pay more in taxes, at a time and place totally unconnected with any specific service.

        It works pretty well for Canada, and throughout the industrial democracies. America should start to take these really quite elementary ideas on board.

        I love that phrase “on board” for a US audience, because Americans are brainwashed with militarism from childhood on. I acutely remember Pat Boone, who now sells walk-in baths on TV in his dotage. When he was a youngster and I was a child, Pat was singing on afternoon TV in the cockpit of a B-52 for all us TV addicted kids.

        Well the biggest socialist system in the world right now is probably the US Armed Services. The attending doctor at my eldest daughter’s birth in Yokohama was the surgeon of the good ship Enterprise, then home-based to Yokosuka, because I was on one or two Federal payrolls at the time. Why an ob-gyn on an at that time all male warship? Hell, why were American schools only financable through the National Defence Education Act? Military service to pay for his ver-ree expensive education…

        And a very effective socialist system it is. To this day my most comprehensive innoculation certificate is my US Army one — from the clinic in the Rayburn House Office Building. Well, just give everybody the same services the Army gets!

        -dlj.

    • DB and Floccina –

      I think you missed a rather key point that the authors covered in their last piece and hid behind a link here – there are very non-trivial costs in the second-order effects that impact all taxpayers. When we were talking about $113B in direct savings, those second-order costs might have been worth it, but that’s no longer the case.

      Also “anyone who disagrees with my argument is unserious/stupid/whatever” is the sort of trolling that prevents me from taking you seriously as a commenter. After all, if you were serious about debating and discussing the issue, you wouldn’t be preemptively attacking the motives of everyone who disagrees with you.

    • The Republican plans are to cut Medicare benefits over decades but immediately cut taxes.

      The option of cutting benefits over time and immediately hiking taxes is totally unacceptable because Obama being Reagan in 1983 makes Obama a radical leftist tax and spend liberal socialist.

      Any discussion about cutting entitlements is crap unless it includes tax hikes.

      Taxes have been 25% lower during Obama’s presidency than during Clinton’s second term, but the economy is worse, so the promised benefits of lower taxes in higher economic growth, more employment, and falling debt have not materialized even when the Republicans who advocate lower taxes were in control of government.

      • Why and how have taxes been lower during Obama? Rates are higher.

        • Income taxes, particularly for high earners, were reduced during the GWB administration. They remain substantially lower than during the Clinton years.

          Federal income tax collections as a percentage of GDP are lower than at any time in the last 50 years. Despite the political rhetoric, current U.S. federal taxes are relatively low, both compared to our own experience and to the rest of the developed world.

    • To those comments above that disagree with mine:

      The problem is that it’s $23B in savings *to the government, not to the economy as a whole*. Moving all those 65- and 66- year-olds into private insurance wouldn’t save Medicare very much, since they would be its youngest and healthiest, but it would drive up private insurance premiums substantially because the new customers would be among the oldest and sickest in private insurance

      That is true but it is important who pays and to encourage savings the saver should benefit from his own non use. You might argue that if they have insurance the saver still does not benefit from his saving but more more insurance is high deductible.

      Absolutely. Let’s make people spend their savings for an extra couple of years, on healthcare at the higher-overheads prices of the private insurance, instead of Medicare’s 2% overheads. Maybe they’ll die earlier because their savings run out. Maybe they’ll qualify for Medicaid sooner since they burned through two more years of their retirement savings, if they had any, savings they had planned to use for rent, food, you know, the little things.
      If it’s 2013 now, and this becomes a 2016 change, then folks who’d be most affected have no time to prepare for it.

      We should improve medicaid for poor people of any age. The age group we are talking about is one relatively high income. As a group they are also reasonably healthy.

      I think you missed a rather key point that the authors covered in their last piece and hid behind a link here – there are very non-trivial costs in the second-order effects that impact all taxpayers. When we were talking about $113B in direct savings, those second-order costs might have been worth it, but that’s no longer the case.

      Do you mean because of the subsidies in the exchanges?

      • Floccina,

        It’s far worse than you say: cutting out waste and grifting is not moving stuff around in the economy; it’s a direct hit to GDP. If the Good Fairy brought Canadian health care to the United States, everybody would live a year longer, and bankruptcies would plunge overnight; at the same time, national “income” would drop a couple or four percentage points. It would be an economic dip of more than Bushy proportions. Maybe both Bushes combined, there’s a thought…

        You cut out the gold-rimmed plates on the executive jets of the insurance operatives, those plates don’t get sold at all. The creativity of the salesmen who got paid to move those plates from the maker to the invoices of the health-care system? Poof! Gone! Never to be seen again.

        Mark my words, bringing rationality and economy to American health care is not moving seats around anywhere, not the decks of the Titanic, nor the Carnival cruise line. It’s a Sherman’s March through the Georgia of greed and grossness.

        March on!

        -dlj.

    • Single payer healthcare, which in the US would be improved Medicare for All, is cost effective and would result in a healthier society overall since everyone would be covered. The “improved” part means moving away from fee-for-service and toward illness prevention and early intervention care instead of throwing gobs of money at illness care as we do now. And it’s worth remembering that even most “seniors” are relatively healthy. The reason Medicare started with older people is because health insurance here has historically been connected to employment and older people give up working at some point

      We continue our fanatic loyalty to the profit-making health insurance industry to our detriment. The genius of Medicare is that it is public money paid to private providers, not public employees as in the UK. It provides the benefits of a public-private partnership and spends 98% of the health care dollar on health care, unlike profit-making insurance companies which spend 20% or more on non-health care activities.

      You can have extended discussion of ‘second-order effects’, deductibles, and which customers will ‘drive up premiums’. All this thinking and verbiage happens when we twist our thoughts like pretzels trying to make profit-making health insurance work as well as Medicare does.

      Simpler would be better, i.e. improved Medicare for All, everybody in, nobody out- a healthier country with public money paying privately employed health care providers to care of us all.

      • I completely agree. This is so clear and simple that the only things holding us back in addition to the points Rosemary makes so well is that we’ve never really figured out whether we are responsible for each other. If we are, then certainly we should try to fashion a system that provides the best health care for all of us that we can. As it is, with our present hodge-podge non-system (before ACA) we always come out poorly when our overall health statistics are compared to those of other industrialized nations. And we must learn to do so more cheaply.

        Accepting our shared responsibilities would make clear how much work we have to get from where we are to where we need to be. I believe that, sooner or later, we will. Remember what they say about Americans, we always do the right thing, but only after trying everything else first.

    • A quick scan of the comments indicates that a main point is being missed here: the unsustainable cost behind medicare is the private healthcare delivery system, which is even more unsustainable for those with private insurance or those without insurance at all. Raising the medicare age does not address this fundamental issue – it is the delivery system that must be addressed yet has only been touched on a little by the ACA and not at all by more recent conservative “ideas” (I say more recent because, as I’m sure everyone commenting knows, the ACA is mostly based on previous conservative initiatives – see link). Healthcare costs are still mostly not being addressed.
      http://healthcarereform.procon.org/view.resource.php?resourceID=004182

      As for single payer, it has advantages but there are plenty of systems better than ours which rely on private insurance and private providers. A good overview of this can be viewed here.
      http://www.pbs.org/wgbh/pages/frontline/sickaroundtheworld/

      Healthcare aside, the first problem to be addressed regarding deficits and debt, which is what this is about if we ignore the ideologues who just want to cut services because it offends them, is a strong economy – a decline in revenues was much more the culprit than increased spending for the jump in deficits in 2009 – but we’ve lost 4 years because of the premature focus on debt, the false focus on spending, and the cost in every way has been huge.

      Finally, the systemic problem which no one is addressing is the hollowing out of the middle. I wonder if the 3-cornered hats, wigs and flag pins that some of us wear with great bluster are made in China?

      • The delivery system issues have been addressed at least in part, e.g. moving away from fee-for-service and toward prevention and early intervention with improved Medicare for all. Germany, Japan, Switzerland, the UK, and Taiwan are the 5 capitalist democracies profiled in the Frontline piece on funding healthcare that you link in your comment. They don’t primarily use “private insurance” as we understand it – 2 use government single payer and the other 3 have mostly non-profit insurance companies. And Medicare does rely on private providers.

        • Rosemary, in all your comments you make a lot of sense!

          The ACA is the way it is because–at least in the current mix–nothing else is politically acceptable to legislators under pressure from the private health care insurance conglomerates–certainly not the politically suspect single payer plan! Said legislators also must appeal to a whole slew of voters who don’t really care that our outcome stats are worse than other developed nations; those voters currently have health care that they like, despite its inefficiencies, because it meets their individual needs.

          Did you ever stop to realize that virtually everyone criticizing ACA already has quality healthcare? Where are the advocates for those who lack coverage? I think a better approach to take in this argument is to focus on what a healthier populace would mean for overall productivity. A more productive economy would benefit everyone, at lower cost.

    • Just a (very?) crazy idea — as a step to eventually move to single-payer, Medicare for everyone: Medicaid for everyone. Step two: paid for by the federal government only, just like Medicare — eliminating the states.

      Then we would have everyone on a central list and only one more step to change over. In the mean time you could keep the plan you have and your doctor if you like them. :-)

      Just an angle to play with. ???

    • Does this mean that *lowering* the Medicare eligibility age to 64 would cost in the vicinity of $3 billion per year in federal expenditures? Does this analysis exist for other age cutoffs?

      • Half that, actually, since we’re talking about raising it by two years and you’re talking about lowering it by one. Another thing to look for is if CBO ever scored lowering it to 55, as was proposed during 2009 and, perhaps, at other times.

    • Going to single payer in the US would mean going to
      “Improved Medicare For All”. This would eliminate Medicaid since
      everyone of all ages would, automatically, be on Medicare
      regardless of income. The overall GDP spent on health care would go
      down since we’d save about 20% of the private health insurance
      dollar which is spent on CEO salaries, advertising, efforts to not
      pay claims, etc. The “IMPROVED” part would include moving away from
      fee for service and doing preventive care and more education around
      staying healthy. These measure, in addition to the fact that people
      would not avoid seeing a health provider due to lack of insurance
      and therefore would get care earlier when ill, would save
      significant money. And, once people began to see that Medicare was
      not going to go away, they would stop using the ER and form a
      relationship with their primary provider. The reason we don’t have
      Medicare For All already is the same reason that we continue to
      build weapons systems and market or give away weapons in so-called
      ‘foreign aid’. Now that money = speech and corporations = people,
      corporations such as Lockheed Martin, GE, Raytheon, UnitedHealth
      Group, Cigna, Humana, BC/BS, etc, employ legions of lobbyists and
      have bought a Congress that works for them and not for us, the
      people, the 99%. The government which Lincoln thought was to be
      “for the people” now has the people serving the interests of
      corporations and being exploited or poorly served in the process.
      Will we keep our heads down and hold our noses and empty our
      wallets as health insurance corporations continue to use health
      care dollars for rip off CEO pay? OR will we PAY ATTENTION, recruit
      candidates who see the problem and vote out those who don’t and
      overturn “Citizens United” and other retrograde, undemocratic
      SCOTUS decisions. As of