Medicare Must Change, Even If Its Eligibility Age Doesn’t
One tempting idea for saving money on Medicare, a program that vacuums up some 15 percent of federal spending, is to raise the age at which Americans become eligible for it. We ourselves have succumbed to this temptation, on more than one occasion.
Raising the eligibility age a couple of years, to 67, remains an attractive idea; it would save the program a lot of money. It’s just that there are a lot of other things Washington should try first.
Before we get to those, allow us to explain our newfound hesitation: Raising the eligibility age is neither as simple nor as effective as many of its proponents claim. Just raise the age gradually, they say, and save as much as $113 billion over 10 years. As an added benefit, you would encourage some Americans to retire a bit later. After all, the average 65-year-old today can expect to live a few years longer than someone the same age could expect in 1965 when the Medicare age was set.
The problem is that such a change would do little to control overall health-care costs, which should be the ultimate goal of all health-care reform. If 65- and 66-year-olds can no longer receive Medicare, they would have to find other health insurance. Some would remain on their employer plans. Some would fall back on Medicaid. Some would join the people shopping for insurance on the state exchanges, perhaps qualifying for federal subsidies.
If the eligibility age were raised by two months a year beginning in 2014, according to the Congressional Budget Office, Medicare would save $148 billion from 2012 to 2021. However, increased federal spending on things such as Medicaid and insurance subsidies would reduce overall federal savings to $113 billion.
Yes, that’d be a nice savings for the government, and goodness knows it could use the money. For many 65- and 66-year-olds -- as well as their employers or former employers -- it would cause a hardship. They would need to pay for their own health insurance, typically at a cost higher than that of Medicare. The net effect would be to make the U.S. health-care system more expensive.
A 2011 study by the Kaiser Family Foundation estimated that two-thirds of people age 65 and 66 would pay more out of pocket and on premiums than they would have paid on Medicare. The study also found that premiums for many other Americans would rise: Those for insurance plans sold on state exchanges would increase by 3 percent (about $141 per enrollee), because the addition of all those older people to the pool would increase the average cost of care. Likewise, premiums for Medicare Part B (for outpatient care) would rise.
Wouldn’t it be smarter to look for other Medicare savings that would not have such expensive side effects?
In his budget proposal for 2013, President Barack Obama outlined a long list of possible Medicare savings: By no longer overpaying hospitals for the cost of medical residencies, for instance, the program could save $10 billion over a decade. By raising the premiums charged to higher-income beneficiaries, it could save $28 billion. By reducing the amount that Medicare reimburses health-care providers for beneficiaries’ nonpayment of deductibles and copayments (to bring it in line with what private insurers reimburse), it could save an additional $36 billion.
And here’s a big one: By requiring drugmakers to issue Medicaid-level rebates for medicines prescribed to beneficiaries who also qualify for Medicaid, Medicare could save $135 billion over 10 years.
What’s more, Medicare could realize uncounted savings by moving faster to dump the old-fashioned fee-for-service model in favor of paying a fixed amount for bundles of health care or even for all the care an individual patient requires. A group of prominent health-care-policy experts writing in the New England Journal of Medicine in September recommended that within 10 years, the program should be able to base at least three-quarters of its payments on something other than fee-for-service.
This is only a partial list of strategies, but it illustrates the range of ideas for saving Medicare money. To preserve the program for future generations -- and to help the federal government get its budget in order -- Medicare’s costs will have to be reduced. At some point it may even be necessary to increase the eligibility age to help Medicare remain solvent. But not yet.
The greater ambition is a humane, effective and efficient health-care system -- public and private, subsidized and not. Any changes to Medicare should endeavor to bring the U.S. closer to this goal.
To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at email@example.com.