As Congressional Republicans concede to the inevitability of higher tax rates on the nation's wealthiest 2%, the chorus for "entitlement reform" grows steadily, especially in Medicare. Though Republicans have been timid to state their Medicare agenda in public (Cong. Paul Ryan's voucher/premium support plan doesn't count because it would only take effect in 2022), the idea to raise the age of eligibility from 65 to 67 to enroll in Medicare is gaining traction. Some reports suggest that President Obama may be open to an "avoid the fiscal cliff" deal that includes this element.
Many media commentators seem warm to the idea. So let's consider whether this is a good idea or a bad one.
First, let's consider the arguments advanced in favor of it:
First, keeping out an estimated five million 65 and 66 year olds out of Medicare would save the federal government about $3.3 billion in 2014 and $85.6 billion over six years (2014-19), according to estimates by the Congressional Budget Office back in 2008 (see option 17 in the linked report). The Kaiser Family Foundation estimates $5.7 billion in federal budget savings in 2014. These savings would help finance an alternative to the fiscal cliff. Also, leaving these five million folks out would extend the life of the Medicare Part A Hospital Trust Fund a little longer, and that would be good.
Second, life expectancy has increased since Medicare was created, now in the upper 70s, and the program was never meant to cover so many people for so long. Increasing the eligibility age just recognizes demographic reality.
Third, the five million 65 and 66 year olds immediately affected would not be without coverage options, thanks to the Affordable Care Act/Obamacare which would enable most of them to obtain subsidized private health insurance through the Health Insurance Exchanges, state or federal, which open for business in January 2014, or through state Medicaid programs for those with low incomes (though the Supreme Court made the Medicaid expansion a state option in its June 2012 ACA ruling).
Fourth, Republicans are making a big concession on the tax rates for the upper income. To create a more civil and cooperative tone in DC, Dems need to give something on the entitlement front.
So what's not to like? More than four things:
First, the alternative coverage available to many of the newly disenfranchised five million would be more expensive for most than their options under Medicare, leaving many worse off financially heading into retirement. Their out-of-pocket costs would amount to $5.6 billion annually according to the Kaiser Family Foundation. Kaiser estimates that two thirds of the five million would pay more out of pocket, an estimated $2,200 on average, and one third would pay less -- though Kaiser's report was written before the Supreme Court ruling, meaning that some significant number of the one third live in states that now will choose not to expand Medicaid, thus leaving some number without a coverage option.
Second, assuming many of these folks would obtain coverage through their available Health Insurance Exchange, their presence in the individual/non-group health insurance market would raise premiums for everyone else in that market because the 65 and 66 year olds would be, on average, the most expensive age cohort in the pool. That's why the health insurance industry opposes this idea, even though it would give them a new set of paying customers. The change might very well drive out more new customers than it brings in.
Third, excluding the 65 and 66 years olds from Medicare would raise Medicare Part B premiums for everyone left. Yes, fewer people in Medicare would lower costs somewhat, but these 65/66 year olds, while the most expensive part of a working adult population, are also the least expensive part of the Medicare population. So the smaller number of Medicare enrollees left behind would have higher average costs per person, and those costs would increase Medicare premiums about 3% higher than they would otherwise be.
Fourth, private employers who provide health insurance coverage to their workers will pay more because of this change. Employees who continue in the workforce and continue on their employer's health plan will be among the most expensive workers in the firm's risk pool, and health insurance costs will increase as a result.
Fifth, state governments that expand Medicaid would pick up the low-income share of five million who will be newly eligible for state coverage. Unlike Medicare which is financed by enrollees and the federal government, Medicaid is financed by the feds and state governments. So states would pay for this change as well, about $700 million annually.
All in all, the projection is that increasing the Medicare eligibility age to 67 would save the federal government some $5.4 billion, net, in 2014 and would result in increased costs for individuals, employers, and states of about $11.7 billion.
That's not savings -- that's cost shifting, pure and simple and it's a bad idea. I hope President Obama and the Congressional Dems do not take this bait.
There is another consideration as well. It is ironic that the ACA/Obamacare would provide a safety net for the five million would-be disenfranchised 65-66 year olds. In spite of the Supreme Court decision in June and the November 6th elections, the ACA still is a shaky safety net when:
- Republicans work to prevent future beneficiaries from getting health insurance subsidies in states where Governors refuse to set up Exchanges and default to the new Federal Exchange; AND
- When Congressional Republicans refuse to consider adequate funding to make the Federal Exchange effective; AND
- When many Republican governors are blocking the ACA's Medicaid expansions.
I have not heard any Republican advance the case the ACA is an asset to their preference to disenfranchise five million seniors from Medicare -- and I believe Congressional Republicans would rather see the 65 and 66 year olds go uninsured for another two years rather than be able to take advantage of the ACA's new coverage opportunities.
Hey senior citizens -- on November 6th, for the second federal election in a row, you voted for the Republicans, and by a comfortable margin. How's that vote feel today?
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