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Relatively Small Savings From Raising Medicare Age Leaves Out Host of Context

Yesterday, the Congressional Budget Office estimated that raising the Medicare eligibility age from 65 to 67 would save the government $148 billion from 2012 to 2021. For context, letting the Bush tax cuts expire would save $3.6 trillion over the same ten-year window. So anyone who tells you that we must increase the Medicare age to “save the budget” should be shown those two numbers. Even just letting the tax cuts over $250,000 expire would save $800 billion, over five times as much. The other difference would be that letting the Bush tax cuts expire would mildly inconvenience wealthy people who can afford the hit, while raising the Medicare age would put a massive burden on 65 and 66 year-olds, increase health insurance premiums for everyone by changing the risk pools, and probably increase overall health costs across the system.

Brad DeLong suggests an alternative reading of the CBO estimate:

CBO estimates that raising the MEA [to 67] would reduce net Medicare outlays by $148 billion from 2012 through 2021. It would also reduce tax revenue collections over that time frame by $80 billion as corporations upped their tax-shielded spending on employee health benefits. 65 and 66-year olds and the businesses that employ them would spend an extra $220 billion purchasing Medicare-level health insurance. And 1/4 of 65 and 66-year olds would find themselves uninsured.

That’s the real-world impact of raising the Medicare age, though DeLong is actually being generous. Health insurance premiums for the individual and employer markets, now with the inclusion of relatively sicker 65 and 66 year-olds, would increase. Health insurance premiums for Medicare, stripped of relatively healthier 65 and 66 year-olds, would also increase. And for those 65 and 66 year-olds, DeLong is correct that they would pay twice as much in health costs as there would be savings to the government. They would also get sicker as a result. Health benefits for large unions would also suffer.

So these anodyne articles merely reporting the government savings – themselves relatively puny – are doing a complete disservice. They simply don’t give the full picture.

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David Dayen

David Dayen