July 28, 2014

Raising The Eligibility Age: Now It's Medicare's Turn

The prospects for the Senate's proposal to raise Medicare's eligibility age are dimming. The administration is opposed. And the House, skittish about charges of senior-bashing after last year's "Mediscare" campaign, has gone on record (in a lopsided vote of 414 to 14) against its inclusion in the final budget deal.

This is unfortunate. Raising Medicare's eligibility age would be an important step toward ensuring that the program remains sustainable in the next century. Indeed, it would make a much bigger difference than the Senate's modest means-testing proposal, which has received the lion's share of media attention. While the means-test would save roughly one-half of one percent of annual Medicare costs, the eligibility age hike, when fully phased-in, would save at least 5 percent -- ten times as much.

Opponents claim that the reform could strand millions of seniors without access to affordable health insurance. But there are plenty of ways to make sure this doesn't happen. The real issue is whether the number of years during which beneficiaries are entitled to receive a blank-check Medicare subsidy can keep rising without bankrupting tomorrow's workers and taxpayers.

 

A Compelling Argument

Almost everyone agrees that longer life spans justify higher retirement ages. In 1983, accordingly, Congress decided to hike Social Security's normal retirement age from 65 to 67, a change scheduled to occur in stages between 2003 and 2027. Given the magnitude of past and projected gains in longevity, the change if anything seems small. For people today to spend the same number of years collecting benefits as the typical 65 year-old in 1935, they would have to wait until 72 before retiring. By 2027, they would have to wait until 74.

The argument for raising Medicare's eligibility age in tandem with Social Security's is equally compelling. The current age-65 threshold was chosen to conform to Social Security's normal retirement age. Each additional year of Medicare benefits imposes an extra burden on workers just as each additional year of Social Security benefits does. Indeed, it imposes a greater burden since per-capita Medicare outlays are rising much faster than per-capita Social Security outlays.

As Medicare's eligibility age goes up, some workers would doubtless decide to stay on the job a bit longer in order to avoid a gap in insurance coverage. Opponents think that this is a drawback of the proposal. But actually, it's a virtue. Not only would raising the eligibility age save taxpayer dollars, it would encourage more seniors to remain active participants in the economy at a time when growth in the workforce will be slowing to zero.

There are many ways to ensure that everyone aged 65 and 66 has access to affordable health insurance even if they lack employer coverage. The least intrusive option would be to encourage private insurers to fill the gap. For high-risk individuals, this might mean setting up mandated risk pools, perhaps paid for with premium taxes. At the other extreme, Congress could require all 65 and 66 year-olds (or their employers) to buy into Medicare. For those who truly cannot afford the buy-in, Congress could provide for a means-tested subsidy.

 

Accepting Reality

Let's not confuse the issue. The question of guaranteeing access to health insurance is separate from the question of where we set Medicare's eligibility age. The same access problems that opponents envisage at 65 and 66 already affect some people aged 62 to 64. But few argue these problems should be solved by setting up a universal entitlement paid for by younger age groups.

Defenders of the status quo can always point to the financial unpreparedness and early retirement of most elder Americans and say that this dependence forces us to continue whatever benefit guarantees are now in place. Eventually, we must recognize that the predicament is self-fulfilling -- and that universal benefit guarantees themselves encourage widespread dependence.

Unreduced subsidies for everyone starting at age 65 are no longer affordable. Social Security has already accepted this reality. It's time Medicare did the same.

FACING FACTS AUTHORS: Neil Howe and Richard Jackson CONCORD COALITION EXECUTIVE DIRECTOR: Martha Phillips

The Concord Coalition web pages were designed by Marla Parker and Krista Reymann. These pages are now maintained byCraig Cheslog. Last updated: 16 Jul 1997