• How small is $5.7 billion? Very small.

    It sounds funny, but a huge number like $5.7 billion is actually small. It’s small when it is compared to a much larger number, like $643.4 billion.

    Yeah, but what’s the point?

    The point is that $5.7 billion is the estimated savings by Medicare in 2014 if 65 and 66 year olds are no longer eligible for the program in that year. The Trustees of Medicare have estimated that the total spending by Medicare in that year will be $643.4 billion. Thus, the savings we might obtain by delaying eligibility until 67 is a mere 0.9% of total program spending. That’s a small number.

    As small as it is, it’s even smaller than you might think.

    The average annual rate of increase in Medicare spending is project to be 6% this decade. That means that between January 1 and March 1 of 2014, Medicare spending will have gone up more than would be saved if we denied coverage by the program to 65 and 66 year olds.

    Saying it differently, we can increase the Medicare eligibility age to 67 in 2014, but what we save will be wiped out by predicted spending increases in the program in under two months.

    What, I ask you, do we do on March 1, 2014 when we realize that we still have a massive spending problem? What do we tell the 65 and 66 year olds who have sacrificed so much for so little?

    This is not serious savings. $5.7 billion is a tiny, tiny number. Just in case you still don’t believe me, here it is in a pie chart. Blue is $5.7 billion (the “savings”). Red is $643.3 billion (total Medicare spending).

    • Austin, I think there are good arguments against raising the age limit, but I am not sure this is one of them. 0.9% is small, but there may be problems that cannot be solved through one dramatic change. We may need to find 1% here, 1% there, etc.

    • Austin, keep up the good work in exposing the non-solution of raising the Medicare entry age.

      The private insurance market is completely treacherous for persons of this age. I am not sure that the ACA will make this much better, by the time that even a modest form of age rating is allowed.

      Right now Medicare is a classic defined benefit plan. ‘Generally accepted health care’ is the benefit, and government essentially has to go out and find the money to pay for the benefit.

      When the cost of Medicare exceeds $1 trillion a year in 2018 or 2020, and assuming that our national income continues not to grow, then finding the money for the defined benefit will not be possible.

      There is no choice but to move to some kind of defined contribution. This in itself is not a Republican concept. Some of the most liberal social democracies have relatively firm budgets for health care.

      Places like Germany and Japan have budget-driven fee schedules.When the budget is exceeded, the fees to doctors and hospitals and drug compaines are cut very rapidly. (without a fuss of intervention by Congress…..and they don’t just cut the rate of increase, they cut the fee itself.)

      This kind of action may actually get uglier than raising the eligibilty age — but it has to happen.

      Bob Hertz