Monkeying with the Medicare eligibility age

People are still talking about changing the Medicare eligibility age to help decrease deficits. What’s this all about? Does it make sense?

Unless you qualify on the basis of disability or kidney failure, you won’t qualify for Medicare until you’re 65. What if you had to wait two more years, to age 67, before going on Medicare? Would that save money or not?

The answer depends on whose money we’re talking about. If we’re talking about your money, we don’t have to think too hard. You’ll obviously spend more of your own money if you have to wait two years to go on Medicare. Collectively, 65 and 66 year olds who would have been on Medicare would spend about $3.7 billion of their own money (in 2014), according to the Kaiser Family Foundation.

Will the federal government save money by not insuring you for those two years? Yes, it will, about $5.7 billion dollars. So, clearly costs would be shifted: a $5.7 billion federal savings is exchanged for $3.7 billion in would-be beneficiary spending. Maybe some people think that’s a worthwhile trade. However, consider that some 65 and 66 year olds who no longer qualify for Medicare would be uninsured. That might bother you. Maybe not.

Even ignoring the effects on the uninsured and sticking to dollars and cents, we’re not even remotely done. What will also happen is that employers will spend an additional $4.5 billion to cover those who would otherwise be on Medicare. Premiums in the exchanges and for Medicare would go up because the average age of both groups would be higher causing the risk pool of both to be less healthy. The cost due to that would be $2.5 billion. States would also spend a little more.

All told, the cost to the system of raising the Medicare age to 67 would be $11.4 billion in 2014, which is a high price to pay for $5.7 billion in federal savings. It’s exactly a factor of two too high. That’s a massive cost shift. Let’s put it this way, how much would you want to pay for the federal government to save $5.7 billion? I hope your answer is no greater than $5.7 billion. (If not, I’ve got a business proposition for you.) Paying $11.4 billion is a rip off.

The trade off here isn’t even close to a good one unless you think we’re buying something exceptional for all that extra spending. That’s an argument I’d really like to see someone make.

For more coverage of this issue and the above calculations see the following:

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