• Did you know raising the Medicare age of eligibility will make seniors pay more for their Medicare?

    Yep. It will.

    See, Medicare doesn’t work like your typical insurance company, which rates different people differently. It’s not making a profit, or advertising, or paying out dividends. Whatever it pays out in benefits is what it asks taxpayers and seniors to kick in. If Medicare costs more, then seniors pay more. Take Medicare Part B as an example. Whatever the amount it is projected to cost (or “premium”),the government pays 75% and seniors pay 25%.

    So if Medicare B spending is calculated to be $5,000 a person, it’s $3750 to the feds and $1250 to seniors.*

    But if we remove the cheapest seniors from the pool (65 and 66-year-olds) and put them in the Obamacare market, then the remaining seniors are going to cost more than $5,000 a person. I don’t know what the number will be, but it will be higher. Whatever that number is, seniors will be paying 25% of it in premiums.

    So this awesome plan will not only do lots of bad things to those who are 65 and 66, but it will also make people 67 and older pay more for their Medicare every year.


    *I imagine co-pays and deductibles will go up, too. I just don’t know how much.

    • So then it follows that if you’re trying to lower the cost of Medicare to participants, it would be helpful to lower the age of eligible participants – how about Medicare buy-in for people younger than 65? Like 55 and up?

      • Yes, that would lower the average cost per beneficiary (unless those who choose to buy in are more expensive than the average 55-year old). It would increase the total number of beneficiaries and the total cost of the program. It’s the opposite effect of this proposal which would eliminate the cheapest beneficiaries, raise the average cost per beneficiary, and lower the total cost of the program.

        The average health spending per American is quite a bit less than the average per Medicare person because older = sicker and more expensive.

        • It doesn’t matter if the new 55-65 year old participants doing Medicare buy-in are more expensive than the average 55-65 year old, it matters if they are more/less expensive than the average Medicare participant.

          They can be less healthy (more expensive) than the average 55 year old but still be less expensive than the average Medicare participant and the average cost would still drop.

          • Doesn’t this basically prove that moving everyone into a single payer system would ultimately be the most cost effective way of covering everyone? You just extrapolate the data from including 65 year olds all the way down to including everyone.

    • Well … co-pays and deductibles for the traditional (fee-for-service) Medicare program are written into regulations (or statute, I don’t know exactly which). Raising the eligibility age would not directly affect the regs/statutes. But given that the remaining pool of seniors cost more, there could be financial pressure on the program that would lead to rising copayments.

      Otherwise the analysis is spot on.

      I just read about Ezekiel Emanuel’s proposal for an eligibility age that is graduated by lifetime earnings. We already track lifetime earnings for Social Security. In the example he gave in the NY Times, people in the bottom quartile would be eligible at age 65, and people in the top quartile would be eligible at age 70. Seems fair to me. Don’t know how much it saves (higher lifetime earnings = healthier = lower healthcare spending in their first few years). Or if the Republicans gave something big like a carbon tax + swearing in blood to implement the ACA, I could live with raising the Medicare age.

      • I think Aaron estimated a 65 yo’s insurance cost as $12K/year. The top quartile starts around $80K/year and there are a lot more people making $100K than Romney’s $20M.

        So take this top quartile earner. He makes $100k and takes home not more than $70K, Maybe $65K. Retiring at age 70 will cost him $60K over 5 years. He’s got an incredible incentive to retire early and start collecting social security. The higher his non-Medicare insurance costs and taxes go, the more incentive he has.

        Medicare isn’t the problem. The problem is we can’t afford to spend over 40% of the world’s military spending. What will make you safer, assured health care throughout your life, no matter what happens or staying in Afghanistan until it’s a peaceful, prosperous, modern democracy?

        • Medicare Part A, B and D average per capita spending in 2012 is something like $12,000 over all beneficiaries, iirc, so that isn’t far off (per capita spending + admin expenses = insurance cost). the 65 year-olds are going to be cheaper than that.

    • Would you please do short white paper on it, taking a first look at those possible numbers? It seems like if it’s going to be part of the deal it’s going to happen fast (within Dec) so there needs to be some at least rough numbers looking at that for people to use. On a related note do you feel the same way about the idea posted by Ezra Klein of tying the age increase to wealth? It’s obviously not ideal but would it have the same impact as you’ve stated above or would it at least be a better option?

    • Dr. Carroll:

      You imply in your first lines that insurance companies rate insureds differently due to ‘making a profit, or advertising, or paying out dividends’.

      This ignores the fact that different cohorts may constitute different risks, and in many cases it’s appropriate to price different risks … differently (even without discrimination, in the common sense of the word!) Think: the risk associated with an 80 yr old v that of a 68 yr old, or of a 30 yr old woman v a 30 yr old man. You can differentiate price without being influenced by the motives of profits, advertising, or dividends.

      • No I state in a sentence that they don’t rate individuals. Then, in a separate sentence I say they don’t do those other things. Medicare is different. It does none of those things. Period. I’m not commenting on the morality or the merits of those things. I’m just stating a fact.

    • Aaron makes good points, but the real issue is that 75% of the cost of Part B comes out of general federal revenue. This is the same pool of funds that must sustain Justice, Energy, Education, Defense, Transportation, and every other federal agency.

      100% of federal subsidies for Medicare Part D come out of general revenue, because the Congress and President in 2003 had zero courage to raise taxes to pay for a new program.

      Even Part A of Medicare needs about $60 billon a year from general revenue on top of the payroll tax.

      Where I am going with this is that the bump in premiums for seniors from raising the eligibility age is probably a minor item. Premiums or taxes for wealthier seniors must go way up across the board if Medicare as we know it is to survive.

      Ironically, there has been a lot of good writing on this subject by Moffitt and the Heritage Foundation, who I often oppose.

    • There are some of us who believe that seniors ought to be paying more for Medicare. Furthermore, the long term incentives for people to save for known future medical expenses should be improved by such a change.

      How many of us are saving an extra $100 or more per month now while we are young so that we can pay health expenses when we (hopefully) reach our 70s and beyond? Precious few. But this is “bad.” We know most medical expenses happen later in life. So just because we don’t know which particular maladies will get us, that doesn’t mean that any of this is a surprise. A good portion of lifetime health expenses are not insurable in the same sense as a good portion of lifetime food expenses.

      That none of the reform discussions are talking about the time inconsistency problems, or asking folks at younger ages to save more so that they pay for their own medical needs, is a bit off to me.

    • Aarron, why is it bad for seniors to pay more for their Medicare? If they don’t pay more, someone else will have to — like struggling families who pay payroll taxes so that seniors can get their knee replacements and return to the golf course.

    • The average cost of Medicare right now is about $11,000 per senior.
      (more than than, if you count the $63 billion that is spent on seniors within Medicaid.)

      Anyways, assume for the sake of argument that each senior has a $5,000-premium hospitalization poilicy, a $4,000 policy for ambulatory care, and a $2,000 drug policy.

      For these benefits, the average senior pays $1200 a year in Part B premiums, about $500 a year in drug premiums, and nothing in Part A premiums. I am not counting Medicare supplements at this time, as they are voluntary.

      So the average senior pays $1700 a year, maybe a little more, for a package with a market value of $11,000.

      Now, we do not need to make each senior pay $11,000, any more than each parent with two children in grade school needs to pay $15,000,

      However, we should make seniors pay more than they do.

      Although in concept I like a national sales tax, I do not think it will get enacted. I like it because seniors do keep buying things, while they can avoid payroll taxes.

      I think the only answer that is fair and plausible is higher income taxes.
      Seniors with some wealth will pay these, seniors with no wealth will be exempt.

      Aaron is right that politicians do not propose this, due to the power of senior voters. This is a weak spot of democracy, i.e. its ability to shrug off financial decisions to please a majority of voters. We will see if America can get around this.