Raising Medicare’s Eligibility Age Would Raise Costs, Not Reduce Them

August 23, 2011 at 2:56 pm

Raising Medicare’s eligibility age from 65 to 67 figures to be one option before the new congressional “supercommittee” on deficit reduction, and there’s speculation that the Administration will include it in the budget plan that it will release after Labor Day.  As former Obama White House advisers Ezekiel Emanuel and Jeffrey Liebman argue in today’s New York Times, this proposal is a “classic example” of “cost-shifting cuts [that] don’t actually reduce health care spending, they just shift costs from the government to the private sector.”  In fact, it would raise overall health care spending, as we explain in a new report.

Raising Medicare’s eligibility would save the federal government money by shifting costs to individuals, employers, and states.  These increased costs would be twice as large as the net federal savings, according to a study by the Kaiser Family Foundation.  (See figure.)

Specifically:

  • 65- and 66-year-olds losing Medicare coverage would face higher out-of-pocket health care costs, on average.  Two-thirds of this group — 3.3 million people — would face an average of $2,200 more each year in premiums and cost-sharing charges.
  • Employers that provide health coverage to their retirees would face higher costs as more 65- and 66-year-olds received primary coverage through their employer rather than Medicare.
  • Medicare beneficiaries, as well as people under age 65 who buy insurance through the new health insurance exchanges, would face higher premiums as 65- and 66-year-olds left Medicare and many of them bought coverage through the exchanges.
  • State Medicaid costs would rise as some of the people who lost Medicare coverage would shift to Medicaid.

That’s not all.  By shrinking Medicare’s share of the health insurance market, raising the eligibility age would reduce Medicare’s market power and weaken its ability to serve as a leader in controlling health care costs.  Moreover, if Congress repealed the health reform law, as the House has voted to do, large numbers of 65- and 66-year-olds who lost Medicare would end up uninsured.  For all of these reasons, raising the eligibility age would be a large step backward.

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More About Paul N. Van de Water

Paul N. Van de Water

Paul N. Van de Water is a Senior Fellow at the Center on Budget and Policy Priorities, where he specializes in Medicare, Social Security, and health coverage issues.

Full bio | Blog Archive | Research archive at CBPP.org

5 Comments Add Yours ↓

Comments are listed in reverse chronological order.

  1. Susan Mysliwiec #
    1

    I agree with most of the points made by previous responses. My solution to lower medical costs would be:
    1. Make it illegal for any organization involved in health care industry to make any kind of political campaign contributions.
    2. Prohibit drug companies and hospitals from advertising on television.
    3. Disallow any any so-called non-profit health company from renting medical equipment or even to exist. There is no such thing as a non-profit medical insurance company. All it does is pay higher wages to the upper eschelon officers of the company. It must spend all of its funds.
    4. Set standards for keeping inventory records and bookkeeping practices: it is unfair to the consumers to have to pay to rent the use of each piece of a pole that holds an IV bag.
    5. GET RID OF PRIVATE INSURANCE COMPANIES…WE NEED A NATIONAL HEALTH ORGANIZATION THAT DOES NOT MAKE A PROFIT.

    Our health care system is an embarrassment to this country. Cost savings trends like “outpatient” surgeries such as breast removal, prostate removal, hernia surgery and scores of others have resulted in more infections and complications that if patients stay in hospital for a few days. Of course, hospitals are responsible for many patients contracting serious infections while in the hospital…i.e. staph and Mursa. Bad cleaning practices and short handed staffs are the primary cause of such things. Shame on the government for not doing its job to protect its people from suffering.

  2. Paul Van de Water #
    2

    My friend Paul Hewitt and I agree on most of these points. First, as Paul notes, there are different sorts of cost shifting. Second, the kind of cost shifting to which Paul refers requires hospitals or other providers to exercise market power. Third, as MedPAC has shown, downward pressure on payment rates can encourage productivity gains. Fourth, all payers should work together.

    CBPP has never promoted a single-payer system, nor do we advocate a reduction in the age of eligibility for Medicare (although that might be a good idea). But we see no reason to shrink Medicare by raising its eligibility age and believe that Medicare should continue to be a leader in controlling health costs system-wide, as it has in the past.

  3. Lorraine Watkins #
    3

    Good article but needs to make more clear that health INSURANCE is not the same as health CARE. The insurance companies and the drug pricing by pharma are the most effective and largest practitioners of rationing ie depriving large groups of access to standard care. The government can’t do that so opaquely. That is why Obama and the Republicans want to stay with subsidies to private insurance and pharma. They have no interest in a program as efficient as Medicare in providing the best to the most.

    btw the single Canadian pays $60.50 per month for his health CARE.

    We are in evil times.

    • Paul Van de Water #
      4

      You’re absolutely right that health insurance is not the same as health care. But in the U.S. people without insurance generally don’t have access to a full range of health care services. That’s why Medicare and health reform are so important.

  4. 5

    We agree that cost shifting is a huge problem, but depart from CBPP on both its definition and policy implications. We would define cost shifting as the practice of hospitals and other providers imposing extra charges on private payers to recoup losses incurred treating public beneficiaries as well as the indigent (the latter reflecting a federal mandate.) This kind of cost shifting is pernicious because of the market concentration that makes it possible. The ability to set prices on private payers undermines incentives to innovate and control internal costs. It amazes us that a health system that is so quick to adopt new treatment technology has been so slow to invest in the kinds of information systems needed to enable the measurement and management of costs.

    As for the policy implications, it is true that private prices are well above those paid by households(through premiums, which typiclly show up as lower wage gains.) The solution, however, isn’t to cover more and more people under Medicare; rather, it is to provide private payers with the tools needed to bring their prices down. Massive productivity gains, approaching 30% of health spending, are well within the health industry’s reach. But realizing their potential will require pervasive price pressures by all payers, not simply government.

    CPBB’s preferred solution is a “single payer” health system. But there are other less radical approaches to dealing with local health monopolies



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