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October 25, 2012

Medicare at 67?

One of the ideas thrown around to save Medicare costs is to increase the age of eligibility from 65 to 67 (Social Security is undergoing a slow transition from 65 to 67, initiated by Congress in 1983). It seems to make sense: people live & work longer, so let's adapt and save some money.

But it looks like it wouldn't help very much.

These numbers below are from a 2011 analysis by the Kaiser Family Foundation I recently reviewed for journal club. For more (but not too much) detail, there's a great Executive Summary on page 5.

If the age change suddenly went into effect in 2014, this is what would happen in the first year:
  • Federal savings: 
    • $5.7 billion (1% of total Medicare costs)
  • Increased costs:
    • 65-66 year olds: $3.7 billion
    • Employers: $4.5 billion
    • States: $0.7 billion (via Medicaid)
    • Premiums: 3% increase for both Medicare recipients and those insured through the Health Insurance Exchanges
A word on their methodology: they make 2 useful assumptions. First, that the ACA stays in force as currently enacted, and implemented as expected (for simplicity, they assume every state expands Medicaid as directed by the ACA). Second, they assume an abrupt increase in the age of Medicare eligibility to 67 (if it were enacted, it would most likely be phased in gradually over at least a few years).

A bit more detail:
  • 5 million enrollees would be affected (there are roughly 50 million now, 42 million >65 years old and 8 million <65 but disabled)
  • Medicare would decrease spending by $31 billion but the total federal savings would only be $5.7 (about 1% of Medicare spending) billion due to increased costs in Medicaid, subsidies through the exchanges, and decreased revenue from Medicare premiums
  • Out-of-pocket costs for 65-66 year olds would rise $3.7 billion
  • Employers would spend an extra $4.5 billion
  • Premiums would increase for 2/3 of 65-66 year olds (about $2200/year each)
  • Premiums would decrease for 1/3 of them, largely through subsidies through the exchanges
  • 42% of 65-66 year olds would receive insurance through employers
    • half would still be working
    • half through a spouse or through a retiree plan
  • 38% would get insurance through the exchanges
  • 20% would get insurance through Medicaid
  • Premiums in Medicare and the exchanges would both increase about 3%
    • Will Rogers phenomenon: the healthiest seniors would leave Medicare, making both the Medicare pool and the non-Medicare pool sicker on average
It's worth noting that over time, the federal share of those covered under the Medicaid expansion slowly drops from 100% to 90% in federal funding, so over time, the federal share will drop a small amount but state costs will increase a bit.

One other point I will add here is that while life expectancy has certainly gone up since Medicare's inception, a lot of that increase is because fewer people die as infants and children. It's not like everyone used to die at age 65 and now everyone dies at age 78 -- many/most of those who made it out of early childhood a century ago lived into their 70s, and many of the big improvements in population health has been in stopping those early childhood deaths (bringing up the overall average).

What if the ACA is repealed? The fed will save a bunch more money -- very roughly, I would estimate $20 billion based on these numbers.** So let's call that 4% of total Medicaid costs saved. But in the absence of the ACA, the 65-66 year olds would only have 3 options for insurance:
  • Medicaid (if they're poor enough)
  • Employer-sponsored (if they're either working or eligible as a retiree or through a spouse)
  • Private individual market
And a lot of them wouldn't be able to get affordable insurance on the individual market -- without the ACA guaranteed issue regardless of preexisting conditions, and the other premium control mechanisms and subsidies, many 65-66 year olds find it basically impossible to get coverage.

So yes, Medicare is costs a lot. And we need to reign in costs. But increasing the age of eligibility 2 years looks like it will only shave 1% off of Medicare costs, while shifting a huge burden onto individuals, employers, and states. 

NB This post refers to the US Medicare program -- government health insurance for the elderly & disabled.

*nothing below this point is from the KFF paper

**$31b minus $7b in premiums and roughly half of the increased Medicaid costs ($8.9b, so another $4b)

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