Raising Medicare Eligibility Age for Fiscal Cliff Deal Could Be Costly

By Kristen Friend, staff writer – December 12, 2012.

President Obama and House Speaker Boehner met privately on Sunday to discuss a deal aimed at addressing a series of expiring tax breaks and mandatory spending cuts, dubbed the “fiscal cliff,” scheduled to begin next month.

Since Sunday, both parties have advanced new proposals. The President sent a new offer to the Capitol on Monday, which Republicans countered on Tuesday. On Tuesday morning, President Obama and Speaker Boehner briefly discussed the offers over the phone.

Although few details have been released, officials claim the President’s latest offer asks for $1.4 trillion dollars in new tax revenue, down from his original request of $1.6 trillion, but still considerably less than Republicans say they will accept. It remains unclear whether progress is being made during the talks, leaving both politicians and pundits to speculate about what might be on the table.

If rhetoric is a sign of progress, the two appear to be getting nowhere. On Tuesday, Speaker Boehner accused the White House of “slow-walking” the process forward by refusing to offer specifics on spending cuts. The Administration quickly responded by pointing to several proposals that contain clear cutbacks to government programs. [1] It is the Republicans, says the White House, who are not providing details.

“The irony of this is that the White House offer had very specific cuts, the GOP counteroffer has almost none,” said White House Communications Director Dan Pfeiffer. [2]

Regardless of public posturing, the fact that both sides are showing discipline by not leaking any details about the offers may be a sign they are closing in on a substantive agreement. [3] The President has been expressing his desire to reach some sort of a “grand bargain” on the budget since Republicans took the debt ceiling hostage in 2011, when similar secretive talks failed to produce an agreement.

But what would such a compromise look like? Both the Obama administration and Congressional Democrats have made it clear that any workable plan must raise rates on the wealthiest taxpayers. Republicans have repeatedly responded by proposing revenue increases through the elimination of unspecified deductions and expenditures. Democrats have indicated that cuts to Social Security are off the table, while Republicans continue to insist on (also unspecified) cuts to social programs.

In this environment, Medicare is emerging as like the likeliest target for cuts. Two recent high-profile articles, one by the Washington Post’s Ezra Klein and one by Jonathan Chait of New York Magazine, suggest that the President may be willing to agree to raise the Medicare eligibility age from 65 to 67 in return for modest tax increases. [4] [5]

Raising the eligibility age for Medicare is unpopular, even among Republicans. A recent AP poll found that Americans oppose an increase in the eligibility age by a margin of 48-40, and a similar Quinnipiac poll places opposition to such a plan at 51-44. The same Quinnipiac poll shows Americans oppose any cuts to Medicare overall by a margin of 70-25. [6] [7]

House Speaker Boehner and Democratic Leader Pelosi find little common ground. Photo: TPMLIVEWIRE.

Some Democrats are wary of what they see as a trap: Republicans goading the President into offering unpopular cuts for which Democrats will then be pilloried in upcoming Congressional elections. The President got a taste of this strategy during his re-election campaign, when he was hit with a series of negative ads denouncing the $716 billion dollars in Medicare restructuring that are a part of the Affordable Care Act (ACA). The inconvenient fact that Governor Romney’s running mate introduced a budget proposal containing the very same cuts did not matter. Nor did the reality that the ACA reinvests the savings, expanding coverage for many seniors, while Congressman Ryan’s plan would have put the money taken out of Medicare exclusively toward deficit reduction. [8]

Regardless of such fears, raising the Medicare eligibility age is one of the only proposals that neither side has explicitly ruled out. It is a prize highly sought after by Republican leadership despite its deep unpopularity and seems to be a concession that President Obama could tolerate. The politics appear to be workable. The question remains, however, whether such a move is good policy.

One of the primary rationales given for raising the Medicare eligibility age is that life expectancy is on the rise. People are living longer, so it makes sense to argue they do not need the program until they are older. It is true that Americans are living longer. Life expectancy has jumped to slightly over 78 years from 75 years in 1990. [9] But these gains are not spread evenly among states or education levels. Life expectancy for Caucasian men and women at with the lowest levels of education is actually decreasing. Caucasian women without a high school diploma can expect to live 73.5 years, compared to 83.9 years for those with a college degree. [10] Since people with a college degree are likely to make more money over a lifetime, the education gap translates to a socioeconomic gap. Those most likely to need Medicare sooner are not seeing gains in life expectancy.

Raising the Medicare eligibility age would provide some savings at the federal level. However, it would also increases costs within the healthcare system as a whole. Such a rise in overall costs should be of concern if the goal is to reign in health care spending and make Medicare more solvent over the long-term.

According to a recent Congressional Budget Office (CBO) report, raising the Medicare eligibility age from 65 to 67 would provide roughly $148 billion in additional revenue over ten years. But the report also noted that the actual savings would be lower, around $113 billion, when expenditures due to increased Medicaid enrollment are factored in. [11]

The Kaiser Family Foundation also looked at the numbers, assuming a full raise of the eligibility age to 67 in 2014. Their report estimates that such a move would save the federal government $5.7 billion that year but increase overall health care costs by $11.4 billion. Medicare premium receipts would also fall due to decreased enrollment. The additional costs would predominantly be borne by states, employers and individuals. [12]

Raising the eligibility age is predicted to cost twice as much as it saves because removing 65 and 66 year olds from the Medicare program could have a ripple affect that would be felt across the health insurance market. Some seniors might choose to work longer, placing the burden of coverage onto employers. Those who retire or do not have access to employer-based health insurance would be forced to purchase insurance in the private market through state or federal exchanges that will be available in 2014. This would increase premiums for everyone participating in the exchanges as the insurance pools absorb higher risk individuals.

Conversely, raising the eligibility age could cause Medicare premiums to go up for older seniors. The bulk of expensive care occurs as people get older. The relative youth and health of 65- and 66-year-olds work to bring costs down within the system.

There is also the real possibility that some seniors will simply go without insurance at all. These individuals will be more likely to use expensive emergency services in lieu of regular preventative care. In theory, lower-income seniors no longer eligible for Medicare should qualify for Medicaid or federal subsidies to purchase insurance. But with some large states like Texas claiming they will not expand Medicaid coverage, a number of seniors are likely to fall through the cracks and remain uninsured.

There are a group of seniors who could experience slightly lower out of pocket expenses if the Medicare eligibility age were raised. People making up to 250% of the federal poverty line ($30,000 for a couple) would likely pay slightly less, but only because they qualify for other government programs like Medicaid, which shifts the costs to states. However, couples making more than $45,000 could see significantly higher out of pocket expenses if forced to purchase insurance in the private market. [13] Middle class seniors could pay an additional $2,200 to $12,000 per year, depending on their eligibility for subsidies. [14]

Despite the fear mongering about bloated government programs, Medicare remains the least expensive way to insure people. It is estimated that average per-capita spending on Medicare will grow at 3.1 percent through 2019, compared with a 4.9 percent growth rate for private insurance plans. The Medicare cost projections factor in increased payments to providers that would prevent the yearly fight in which Congress currently engages over reimbursement rates. [15]

The President’s original proposal called for some additional Medicare savings, around $350 billion, much of which would be achieved by allowing Medicare to bargain for prescription drug prices. The VA and Medicaid already use their bargaining power and pay lower prices for prescription medication. [16] Republicans, while adamant about cutting government programs, are still short on specifics. Whether the two sides can negotiate an agreement that will pass both houses of Congress by January seems dubious, but remains to be seen.

SOURCES:

1. http://www.reuters.com/article/2012/12/11/us-usa-fiscal-idUSBRE8A80WV20121211
2. http://online.wsj.com/article/SB10001424127887323339704578173241968322374.html
3. http://www.cbsnews.com/8301-34222_162-57558646-10391739/inching-closer-to-a-fiscal-cliff-deal/
4. http://www.washingtonpost.com/blogs/wonkblog/wp/2012/12/07/the-fiscal-cliff-deal-comes-clearer-a-37-top-tax-rate-and-a-higher-medicare-eligibility-age/
5. http://nymag.com/daily/intel/2012/12/go-ahead-raise-the-medicare-retirement-age.html
6. http://ap-gfkpoll.com/main/wp-content/uploads/2012/12/AP-GfK-Poll-November-2012-Final-Topline_FRAM-updated-BUDGET.pdf
7. http://www.businessinsider.com/fiscal-cliff-polls-explained-tax-rates-obama-taxes-republicans-boehner-cuts-medicare-2012-12
8. http://www.washingtonpost.com/blogs/wonkblog/wp/2012/08/14/ryans-budget-keeps-obamas-medicare-cuts-full-stop/
9. http://www.cdc.gov/nchs/products/life_tables.htm
10. http://www.nytimes.com/2012/09/21/us/life-expectancy-for-less-educated-whites-in-us-is-shrinking.html?pagewanted=all&_r=0
11. http://news.investors.com/ibd-editorials-on-the-left/120612-636005-raising-age-for-medicare-wont-cure-medicares-ills.htm
12. http://www.cbpp.org/cms/?fa=view&id=3564
13. http://www.tnr.com/blog/plank/110944/no-dont-raise-the-medicare-age
14. Kaiser Family Foundation, Health Reform Subsidy Calculator, available at http://healthreform.kff.org/subsidycalculator.axpx and http://www.cbpp.org/cms/?fa=view&id=3564
15. http://in.reuters.com/article/2012/08/15/column-miller-medicare-idINL2E8JF7X620120815
16. http://theincidentaleconomist.com/wordpress/private-vs-public-health-care-cost-control-faq/