Wednesday, September 14, 2011

Higher Medicare Eligibility Age Increases Healthcare Burden on Economy

The Center on Budget and Policy Priorities (CBPP) has published a discussion of the issues associated with any attempt to curtail federal costs by raising the Medicare eligibility age to 67 years. Their conclusion is that it is a bad idea for the fiscal health of the country and for the individuals who would be affected.

The assumption is made that the higher Medicare eligibility age will come up as a means of reducing federal costs and thus the federal deficit. The argument is occasionally heard that this would merely make this age consistent with the Social Security full-retirement age which is approaching 67 years. CBPP points out that there is faulty logic in play here. Most people retire before 65 and take the lesser payments available starting at age 62. This creates an awkward situation in which retirees have to find some sort of coverage between the time they stop work and when they are eligible for Medicare. The two systems are already out of phase and the change in eligibility age would only make it worse.

CBPP refers to a study by the Kaiser Family Foundation for the fiscal implications of raising eligibility to age 67 in 2014. The conclusion is that very little federal money is actually saved, and the net effect is to distribute—and increase—healthcare costs throughout the economy. This summary chart is provided.

Why are the savings, $5.7 billion, so small? Actual Medicare spending would decrease by $24 billion in 2014, but that would be balanced by an additional $18 billion in expenses to cover the effect of the 65-67 year-olds on Medicaid and on the participants in the health insurance exchanges. Sending 65-67 year-olds with expensive healthcare needs out to get coverage will end up raising the cost of coverage for everyone.

If Congress should make such a move they would be passing the costs on to others and trading one form of healthcare for a more expensive form. As CBPP concludes: if your intent is to produce a healthier government and a healthier economy, you have done little for the government, and have contributed significant harm to the economy.

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