A reoccurring idea among some politicians of late in the fiscal cliff negotiations is to raise the Medicare eligibility age from 65 to 67. The argument, at first glance, seems simple enough: Medicare as a program can be left unchanged (thus averting--for now--a deeply divisive philosophical disagreement between Republicans and Democrats), but government expenditures can be reduced by reducing the number of seniors eligible for the program. Indeed, the Congressional Budget Office (CBO) has estimated that raising the Medicare eligibility age would cut federal Medicare expenditures by $148 billion over a ten-year period. What’s not to like about such an easy, painless solution? Plenty, when you look at the consequences of such a change.
There’s a prevailing belief, often perpetuated by those who oppose the expansion of Medicare and Medicaid, that a prime reason for our exploding health care costs is because of excessive benefits or inefficient government purchasing practices. These are the same voices that continually lament public sector waste and categorically extol the virtues of a far more efficient private sector. And while this narrative makes it convenient to oppose more government involvement in health care and intuitive to support privatization, it ignores some important realities.
First and foremost, when it comes to controlling the cost of health care, is the government’s scale as a health care purchaser. The leverage that Medicare has, as the single largest bulk buyer of health care services in the country, allows it to negotiate much lower prices than any private insurer. And since Medicare provides coverage to around 50 million beneficiaries, the sheer volume of patients with this coverage forces most providers to accept these payments, even though they make more money seeing higher paying, privately-insured patients.
Unfortunately the 2003 Medicare Modernization Act (which expanded Medicare to cover prescription drugs starting in 2006) specifically prohibited the government from negotiating bulk prescription prices, and the Obama administration agreed to keep this restriction in place in exchange for pharmaceutical industry support of the Affordable Care Act (ACA). While the drug benefit has cost less than originally projected (for a variety of reasons), the added savings from using Medicare's purchasing power to negotiate lower prescription drug prices for could be a major source of possible savings for Medicare beneficiaries.
In the big picture, our nation’s problems with deficits will not be solved simply by capping spending. Costs will continue to rise, and health care rationing as it exists today -- by ability to pay -- will merely be exacerbated. This is another reason why raising the Medicare eligibility age makes little sense. Moving 65 and 66-year-old patients from Medicare to the private market doesn’t only shifts costs from the government to the patient, it also leads to a marked increase in costs.
Many proponents of delaying Medicare eligibility assume that all seniors who would be pushed out of Medicare would be able to afford private insurance, which is far from a sure thing. A substantial number would be left uninsured, and there’s clear evidence that Americans, in the years before becoming Medicare-eligible, already routinely postpone needed care. As a consequence, these individuals become more expensive Medicare recipients once they do become eligible.
The nonpartisan Kaiser Family Foundation has projected that 5 million people would be affected in 2014 by an eligibility shift to age 67, leading to a gross savings of $31.1 billion to Medicare in 2014. However, the amount would be offset by $7 billion in lost premiums from the 65 and 66-year-olds; $9.4 billion for subsidies for those who enroll in public exchanges; and $8.9 billion in new federal reimbursements to states to care for the lowest income 65 and 66-year-olds who would enroll in Medicaid. The latter figure assumes that all 50 states implement the ACA, though many heavily Republican states have said they’ll turn down the expansion. That scenario would leave the 65 and 66-year-old seniors unable to afford coverage in health insurance exchanges uninsured. Factoring in these additional governmental expenditures, the net savings to the federal government would be about $5.7 billion in its first year of implementation.
However, these savings would be offset by an additional $11.4 billion in spending by other parties. This includes $3.7 billion in higher out-of-pocket costs for 65 and 66 year-olds, $4.5 billion from employers who would have to primarily cover their retirees for two additional years, $700 million to cover the shift of Medicare enrollees to Medicaid, which is funded by the federal government and states, and higher average premiums for third party health insurance due to the entry of the higher risk 65 and 66-year-olds from Medicare into the general population.
If anything, we should be lowering the Medicare eligibility age (ideally to birth), to take advantage of the enormous potential cost savings we could have by bringing more people into the program. Short of this reasonable, but somehow radical idea, we should at the very least bring back the ‘public option,’ which would provide a choice in the new ACA-mandated health insurance exchanges starting in 2014 for individuals to basically buy into Medicare, regardless of age. The CBO estimated that such a public option could save the federal government about $68 billion in reduced subsidies over 10 years while also reducing out-of-pocket costs.
There are no shortcuts or easy fixes to substantively addressing our fiscal problems, which are largely related to the rising costs of health care. And while there are many problems in our healthcare system contributing to uncontrolled spending, Medicare is in a unique position to be part of the solution.