Raising the Medicare retirement age would not save money; it would cost money.

July 27th, 2015 at 9:20 am

Paul K starts us out this week with a compelling defense of Medicare, age 50 this week, against mindless right-wing attacks.

In passing, Paul points out that raising the Medicare eligibility age would “hardly save any money.” He’s talking about the federal budget here, but if one broadens the scope, as I think you should, to the whole economy, increasing the Medicare retirement age will increase, not lower, the all-in (private + public) cost of health care.

Why? Very simple: because you’re taking the youngest and healthiest people (65 and 66 year-olds) out of the lower cost, more efficient system (that would be Mcare which controls costs better than the private side; see Krugman’s numbers on this), and putting them into the less efficient, private side of the system.

That is, some current Mcare beneficiaries would remain on their employers’ plans, where they are relatively costly compared to the rest of the employer-side risk pool, instead of moving over to the Mcare, where they are relatively cheap. BTW, that’s one reason for the result Paul cites: they don’t save much because they’re less costly. You want to save bigger bucks in Mcare, throw some 80 year-olds off the program (note to Rep. Ryan et al: that’s sarcasm…pls ignore).

Of course, some of these folks would lose coverage, which is also a cost relative to the current system both in terms of their own insecurity and the costs of uncompensated care to the system when they show up in ER’s without coverage.

A few other ways raising Mcare’s retirement age raises system-wide costs:

–Shifting some 65-66 year olds over the Mcaid, increasing state costs.

–Increase premiums for those 67+ still on Mcare, based on the dynamics described above (removing relatively less expensive, younger seniors from the risk pool).

–Raising out-of-pocket costs for those who lose Mcare coverage, by an estimated average of $2.2K for about 2/3’s of them.

I’m all for fixing what’s broken in gov’t, and no question, we need to take action to shore up Mcare’s financing as we baby boomers increasingly continue to roll (schlep?) onto the system. But let’s not fix what ain’t broken by breaking it.

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One comment in reply to "Raising the Medicare retirement age would not save money; it would cost money."

  1. Jill SH says:

    I’ve often fantasized about ways to expand Medicare. Here are some ideas.

    1. My hairdresser’s husband is disabled and on Medicare. She does not have employer insurance; she now buys thru the ACA Marketplace. Let’s allow spouses like her over age 50 (55?) to buy into Medicare early, paying a premium/tax that is a percentage of her personal income. Isn’t a goal of the ACA to limit premiums and out of pocket to 8% of personal income, for subsidized plans bought through the Marketplace exchange? Let’s cut to the chase: Rather than subsidize private insurance (and lose 15% to the medical loss ration), let folks just pay into a much better plan — Medicare.

    2. Even if not disabled, let younger spouses who lose coverage when the older spouse retires buy into Medicare.

    3. Again: let’s expand Medicare with a 100% coverage option and include long term care, all as a buy-in plan. (I commented a week or so ago that a lot of Boomers with no pensions and meager savings are going to end up on Medicaid rolls anyway. Let’s get them off the state budgets, where Medicaid for elderly is the real budget buster. States like NH are notorious for underpaying, which really hurts care providers, leads to cost shifting, blahblahblah. A lot of insurance companies are making a lot of money off Medigap plans (and Advantage plans too), so why doesn’t the govt think like an insurance company and offer gap plans itself?

    4. A critical time for many folks is middle-age, 50-65. Folks in this age range, if hit with loss of job and difficulty re-entering employment, and/or significant income reduction, and/or chronic health problems, could really use a stable long-term health coverage that can cope with the vagaries in their lives. Can we come up with criteria to allow these people to buy into Medicare also?

    I know I know. Sounds too much like a public option, doesn’t it? But then this really could be soooo much simpler. Everyone contributes; everyone benefits. Medicare for everyone.