How Raising the Medicare Eligibility Age Will Cost America Billions
Sep 8th 2011 7:00AM
Updated Sep 8th 2011 11:30AM
In the same way the kitchen only gets cleaned if someone takes the time to scrub it, health bills only get paid if someone coughs up the money. And while Congress could change the eligibility age so that the federal government doesn't foot those two years' worth of bills, the fact remains that if Medicare doesn't pay, someone else has to.
"The fundamental purpose of deficit reduction is to strengthen the economy over the long term," writes Paul N. Van de Water, senior fellow at the Center on Budget and Policy Priorities, a widely-respected economic policy nonprofit. Given that goal, the question then is not whether we should raise the eligibility age by two years, but rather, how such a change would affect the overall economy.
According to a Kaiser Family Foundation report released in July, "raising Medicare's eligibility to 67 in 2014 would generate an estimated $5.7 billion in net savings to the federal government." Great news, but that's only half the story. The report goes on to say that it would also increase total health care spending by at least $11 billion. There are three reasons why:
First, the 65- and 66-year-olds no longer covered by Medicare would be responsible for roughly $3.7 billion in out-of-pocket costs. Surprisingly, middle class Americans would be among those hardest hit, according to Van de Water. "When health reform goes into effect in 2014, very low-income people will become eligible for Medicaid. Other 65- and 66-year-olds with low incomes wouldn't qualify for Medicaid but would be eligible for for subsidies to participate in the new health insurance exchanges. People with still higher incomes could participate in the health insurance exchanges but wouldn't get subsidies, and their premiums and other out-of-pocket costs would be higher than in Medicare."
A third cause for the significant increase in health care spending would be that Medicare has negotiated rates that private insurers can't match. These rates have kept down the overall cost of health care. "Medicare is a relatively efficient source of health insurance," says Van de Water. "Its administrative costs are quite low, and private insurers aren't able to negotiate as low payment rates as Medicare provides. So that means if we take people out of Medicare and move them into private coverage, it ends up costing the system more." How much more? According to the Kaiser Family Foundation, premiums would increase roughly 3%, which is a lot of money when multiplied across the entire American population of 65- and 66-year-olds.
All said and done, increasing the eligibility age would save the federal government $5.7 billion, and cost the country $11.4 billion as states, individuals, and employers picked up the bills. So even putting aside the question of whether or not the government should be in the business of providing health care -- and putting aside the partisan politics that have virtually paralyzed our legislature -- strictly going by the numbers, the hard data, the answer is appallingly clear: Raising the Medicare eligibility age will cost our country billions.
If the goal is to strengthen our economy -- and I hope we can all agree that this is, in fact, the goal -- then we have to be thoughtful in how we approach the question of health care spending. Yes, the rising cost of health care is a problem, a significant contributor to the country's long-term deficits. And yes, we need to address it. But the goal should be to reduce the real overall cost of health care. Otherwise, we're just wasting our time, and a whole lot of money.