Raising the Age of Medicare Eligibility: A Fresh Look Following Implementation of Health Reform

Several major deficit-reduction and entitlement reform proposals include raising Medicare's age of eligibility from 65 to 67 as a way of improving Medicare's solvency.  This Kaiser Family Foundation report estimates the expected effects on such a change on the federal budget, as well as on affected seniors' out-of-pocket costs, employers, Medicaid and others in light of the major changes in coverage enacted under the 2010 health reform law.

The study estimates that raising Medicare’s eligibility to 67 in 2014 would generate an estimated $7.6 billion in net savings to the federal government, but also result in an estimated net increase of $5.6 billion in out-of-pocket costs for 65- and 66-year-olds, and $4.5 billion in employer retiree health-care costs. 

In addition, the study projects that the change would raise premiums by about 3 percent both for those who remain on Medicare and for those who obtain coverage through health reform's new insurance exchanges.  The study assumes both full implementation of the health reform law and the higher eligibility age in 2014 in order to estimate the full effect of both the law and the policy proposal.
                                                                                                      
In the absence of the health reform law, raising Medicare's age of eligibility would result in an increase in the uninsured, according to other studies, as many older Americans would have difficulty finding affordable coverage in the individual market in the absence of Medicare.  With health reform, virtually all 65- and 66-year-olds would be expected to obtain alternative sources of coverage. 

The study is authored by researchers from the Kaiser Family Foundation and the Actuarial Research Corporation and is available online. It is the first in a new series of Kaiser Family Foundation studies examining the effects of proposed Medicare changes on the program’s beneficiaries, the federal budget and other stakeholders.

Read Full Report: Raising the Age of Medicare Eligibility: A Fresh Look Following Implementation of Health Reform

PDF format, 1.49MB, 32Pages.

EXECUTIVE SUMMARY
As the debate over the federal deficit takes hold, some are proposing to raise the age of Medicare eligibility beyond age 65 as one among many options to reduce entitlement spending. Previous studies, conducted prior to the enactment of the 2010 health reform law, show that an increase in the age of Medicare eligibility would be expected to reduce Medicare spending, but also increase the number of uninsured 65 and 66 year olds, many of whom would be expected to have difficulty finding comparable coverage on their own, either because of prohibitively expensive premiums or coverage limitations imposed on those with pre-existing conditions.

Our analysis differs from prior analyses of raising the age of Medicare eligibility primarily because it takes into account key provisions in the 2010 health reform law, which provides new avenues to public and private health insurance coverage for those under age 65, including expanded Medicaid eligibility and a new health insurance Exchange.

This study examines the expected key effects of raising the age of Medicare eligibility to age 67. We assume full implementation in 2014, rather than the more common assumption of a gradual increase, to illustrate the likely effects once fully phased in. We also assume full implementation of the 2010 health reform law. A full discussion of assumptions and their expected effects is included in the Technical Appendix. Key findings include:

• Federal spending would be reduced, on net, by $7.6 billion in 2014. This includes gross federal savings of $31.1 billion, offset by new costs of expanded coverage under Medicaid ($8.9 billion), federal premium and cost-sharing subsidies under the Exchange ($7.5 billion), and a reduction in Medicare premium receipts ($7.0 billion).
• Seven million people age 65 or 66 at some point in 2014 would be affected by the policy change for one or more months. This number is equivalent to five million people affected for a full 12 months. Of that five million, we estimate 42 percent would turn to employer-sponsored plans for health insurance, either as active workers or retirees, 38 percent would enroll in the Exchange, and 20 percent would become covered under Medicaid.
• Three-fourths of adults ages 65 and 66 affected by the proposal are projected to pay more out-of-pocket, on average, in premiums and cost sharing under their new source of coverage than they would have paid under Medicare. However, nearly one in four are projected to have lower out-of-pocket costs than they would have had if covered by Medicare, on average, mainly due to provisions in the health reform law that provide subsidies to the low-income population through Medicaid and the Exchange.
• Premiums in the Exchange would rise for adults under age 65 by three percent (an additional $141 per enrollee in 2014), on average, due to the shift of older adults from Medicare into the pool of lives covered by the Exchange.
• Medicare Part B premiums would increase by three percent in 2014, as the deferred enrollment of relatively healthy, lower-cost beneficiaries would raise the average cost across remaining beneficiaries.

In addition, costs to employers are projected to increase by $4.5 billion in 2014 and costs to states are expected to increase by $0.7 billion. In the aggregate, raising the age of eligibility to 67 in 2014 is projected to result in an estimated net increase of $5.6 billion in out-of-pocket costs for people who would otherwise have been covered by Medicare. This analysis underscores the importance of carefully assessing the distributional effects of various Medicare savings proposals to understand the likely impact on beneficiaries and other stakeholders.

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