CBO: Raising Medicare eligibility age by two years would save very little

For years now, some people wanting the U.S. to trim "entitlement" costs have, among other things, proposed raising the age at which non-disabled people become eligible for Medicare. The current eligibility age is 65. (Disabled people generally are eligible for Medicare two years after they become eligible for federal disability benefits.) Early last year, the Congressional Budget Office (CBO) estimated that raising the Medicare eligibility age from 65 to 67 would save the Treasury $113 billion over 10 years. That savings wouldn't close the deficit on its own, of course, but $113 billion is not pocket change either.

Politicians must consider whether upping the eligibility age is a good idea even if it saves money. And then there's the large amount of political capital politicians of all stripes would have to expend to raise the entitlement age (assuming they think it is the right thing to do). So, politicians are sure not going to spend that capital if the savings are small.

And that may be the case. In an analysis done with the Joint Committee on Taxation, CBO has greatly revised downward the savings from raising the eligibility age by two years. It now estimates that the savings would be only $19 billion from 2016-2023. In today's world, saving a little more than $2 billion a year on a program as large as Medicare is close to saving nothing at all. A synposis of why CBO's estimate has changed appears after the jump.

CBO’s current estimate of the savings to Medicare from this option is
much lower than its earlier estimates for proposals to raise Medicare’s
eligibility age. For example, in a report published in January 2012,
CBO estimated that such a policy change would produce budgetary savings
of $113 billion over 10 years.

The current, lower estimate primarily reflects a new assessment by
CBO that some of the people whose eligibility for Medicare would be
delayed under this option would not cost Medicare as much, under current
law, as CBO previously projected. CBO’s current estimate incorporates a
detailed analysis of the cost of 65- and 66-year-old Medicare

CBO’s analysis highlighted two points. First, at ages 65 and 66,
beneficiaries who enrolled in Medicare when they turned 65 tend to be in
much better health—and thus are substantially less expensive, on
average—than beneficiaries who were already enrolled upon turning 65
(because of disability or end-stage renal disease). Second, the many 65-
and 66-year-old beneficiaries who are workers (or workers’ elderly
spouses) with employment-based health insurance are less costly to
Medicare, on average, than other beneficiaries at those ages. For most
of those workers, employment-based health insurance is the primary
source of coverage, and Medicare is a secondary payer—meaning that
Medicare’s payments are limited to the cost-sharing obligations that
beneficiaries face under their employment-based health insurance
policies. Moreover, most beneficiaries for whom Medicare is a secondary
payer wait to enroll in Parts B and D of Medicare until they (or their
spouses) stop working. As a result, Medicare spends much less on Part A
services for those beneficiaries than it does for beneficiaries for whom
Medicare is the primary payer, and it does not pay for services covered
under Parts B and D.

Taking into account both of those factors—differences in health
status between beneficiaries who enroll in Medicare at age 65 and those
already enrolled by 65, and the effect of secondary-payer status—caused a
significant reduction in CBO’s estimate of Medicare spending under
current law for beneficiaries who would be affected by the increase in
the eligibility age. Mostly as a result of those changes, CBO’s current
estimate of the net costs to Medicare of those beneficiaries under
current law is roughly 60 percent lower than CBO’s previous estimates.

By contrast, CBO’s estimate of the extent to which this option would
increase federal spending for Medicaid and exchange subsidies has not
changed significantly. Compared with previous estimates, a similar
proportion of beneficiaries who would lose Medicare eligibility under
this option are estimated to enroll in Medicaid or the health insurance

The much smaller reduction in Medicare spending, combined with a
similar increase in non-Medicare spending, results in a net change in
projected outlays that is much smaller than previously estimated.
Additionally, CBO’s new estimate includes the option’s projected effects
on federal revenues, which was not included in previous estimates.

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