Medicare: Is 67 the new 65?
Looking for ways to slow the growth of entitlement programs, budget negotiators in Washington are considering making seniors wait two years longer to qualify for Medicare — from age 65 to 67. Many Republicans have endorsed the idea, noting that Medicare beneficiaries now live far longer on average than they did when Congress created the program in 1965. The problem with the proposal is that it wouldn’t save the federal government much money overall, even though it might cut Medicare’s costs. Worse, it would probably cause total spending on healthcare to go up faster, which is the opposite of what Washington should be trying to achieve.
Medicare is the most expensive federal program after Social Security and national defense, and its costs more than doubled from 2000 to 2010. The 2010 healthcare reform law, which included numerous measures to slow that growth, is projected to hold down the increase in spending per beneficiary for the next several years. But the number of beneficiaries is increasing rapidly, far faster than the number of people in the workforce whose payroll taxes help pay for the program. As a result, Medicare expenses are projected to grow to $1.1 trillion in 2022, or almost 20% of the federal budget.
Raising the eligibility age to 67 would slash costs by significantly reducing the number of people covered by Medicare, which now insures about 50 million Americans. A study last year by the nonpartisan Kaiser Family Foundation found that if the age were raised in 2014, 7 million fewer people would become eligible that year. Congress is more likely to raise the minimum age gradually, but even if it did so over the course of the coming decade, the change could save Washington $113 billion, the Congressional Budget Office estimates.
Proponents say that the average life expectancy of a 65-year-old was about 14 more years when Medicare was created; it’s now more than 19 years. Raising the eligibility age would not only acknowledge that change but also bring the program into line with Social Security. Lawmakers agreed in 1983 to increase the minimum age for full retirement benefits to 67 by 2027, essentially reducing the amount of Social Security benefits retirees would collect but extending the solvency of the program for decades.
One obvious problem with raising the minimum age for Medicare is that it would force millions of people to find other ways to pay for their medical care. The Kaiser study estimated that more than 40% would be covered by their employers’ group plans, as either workers or retirees. About 3% would already be enrolled in Medicaid because of poverty or disability and would remain in that program.
Throwing the remaining 57% into the private insurance market would have been politically impossible prior to the 2010 healthcare reform law because of the high premiums insurers charge older Americans. According to the latest report from the insurance industry, an adult couple 60 to 64 years old paid almost $20,000 for coverage in 2009, which is twice the national average. But the new law made affordable insurance available to low- and moderate-income individuals in two ways: It called on states to provide Medicaid to all residents with incomes below 138% of the federal poverty line, and it created insurance marketplaces called “exchanges” with subsidies for consumers earning up to four times the poverty line.
Assuming the 2010 law works as intended, raising the Medicare eligibility age wouldn’t lead to any loss in coverage. It would instead shift the cost of covering 65- and 66-year-old Americans to those individuals (leaving them with out-of-pocket costs and premiums higher than in Medicare in most cases), their employers and co-workers, the Medicaid program (whose expansion would be paid for mostly by federal taxpayers), and other consumers in the exchanges (whose premiums would rise to reflect the added risk posed by the older policyholders). The ultimate result, according to Kaiser, would be billions of dollars in savings each year for the federal government, but more spending on healthcare overall.
But the 2010 law isn’t likely to work as Congress intended, and many 65- and 66-year-old seniors could end up uninsured if excluded from Medicare. The Supreme Court ruled this year that Congress could tell states to expand Medicaid but it couldn’t penalize those that refused. As a result, many states are expected not to extend coverage to 138% of the poverty line or to able-bodied individuals without dependent children. Low-income seniors in those states could still seek heavily subsidized coverage through the state’s insurance exchange, but the out-of-pocket costs would be significantly higher — too high, some advocates for the elderly warn.
The best argument against raising the eligibility age is that moving younger seniors out of Medicare wouldn’t provide any long-term help to the program. The vast majority of those seniors would still be covered by the program two years later. Nor would the change abate the forces driving up healthcare costs, such as expensive new drugs and technologies, misplaced incentives and inefficient delivery systems. These are challenges for the entire healthcare industry, not just Medicare.
In short, raising the minimum age for Medicare isn’t a solution, it’s a trade-off. By shifting costs onto individuals, businesses and other public programs, it would reduce the pressure to cut Medicare expenses in ways that could be more detrimental to its beneficiaries, such as raising premiums. And there’s no avoiding the reality that solving the government’s budget problems in general and Medicare’s in particular will entail some sacrifices. The guiding principle should be whether those sacrifices lead to a stronger Medicare program in the long run, without leaving fewer people insured. It may be possible to raise the eligibility age in a way that meets those goals — for example, by exempting low-income seniors who wouldn’t be covered by Medicaid. But it’s no substitute for addressing the forces driving up healthcare costs for all Americans.
