Saving a little on Medicare may cost everyone else a lot
CHICAGO (Reuters) - Congressional Republicans want to raise Medicare's eligibility age as part of a deal with Democrats to avoid falling off the fiscal cliff. Raising the eligibility age from 65 to 67 would save some money for Medicare and low-income seniors. But at the same time, it would boost out-of-pocket insurance costs for two-thirds of seniors in that age bracket and those who are younger, plus raise overall healthcare spending for the federal government, states and employers.
Start shifting insurance risk in one age bracket, and the effects ripple.
First, the youngest, relatively healthy seniors would move out of the Medicare risk pool, raising the cost -- and premiums -- of covering older beneficiaries.
Second, many of the younger seniors cut off from Medicare would instead shop for individual insurance plans under the new insurance exchanges that launch in 2014 under Obamacare. They'd be the relatively older and sicker people insured on these plans, which would push up the cost of premiums for younger enrollees.
"The policy involves trade-offs," says Juliette Cubanski, associate director of the Medicare Policy Project at the non-partisan Kaiser Family Foundation (KFF), which recently analyzed the impact of raising Medicare's eligibility age on seniors' pocketbooks and government spending.. "It would affect far more than just those directly impacted by the higher eligibility age."
Although any change of this kind would likely be phased in gradually over a period of years, KFF's analysis assumed a full phase-in for 2014, which offers a look at what the policy would do once fully implemented. Some conservatives have argued for pushing up Medicare's eligibility age to match the rising full retirement age of Social Security, and as a money-saving move. And the Congressional Budget Office has estimated that raising the Medicare eligibility age would cut federal Medicare outlays by $148 billion over a ten-year period.
But the KFF single-year analysis is instructive, because it shows that overall savings likely would be far smaller -- and that many seniors would wind up paying far more for health care.
Here's a rundown of the results:
1. Government savings
Five million people would be affected in 2014 by an eligibility shift to age 67, resulting in gross savings of $31.1 billion in 2014 to Medicare. But that amount would be offset immediately by $7 billion in lost premiums from the 65-to-67 group.
Then, there would be an offset of $9.4 billion for subsidies for those who enroll in the public exchanges.
The lowest income seniors age 65 to 67 would enroll in Medicaid; that would require $8.9 billion in new federal reimbursements to states for care of those patients, KFF found. But that's assuming all 50 states implement Obamacare's expansion of Medicaid; many Republican-dominated states have said they'll turn down the expansion. If that happens, seniors age 65-to-67 too poor to buy coverage in exchanges would fall into the ranks of the uninsured.
"In those states, people in that age bracket would have the same problem as anyone under age 65," says Cubanski. "You're essentially left without an option for coverage."
So the government's net saving would be just $5.7 billion.
2. Higher costs for employers and states
KFF projects that employers' health insurance costs would jump $4.5 billion in 2014 if this plan were to be implemented. In situations where employers provide health coverage to workers or retirees, Medicare is either a primary or secondary payor; moving people off Medicare would increase employer obligations. Spending on Medicaid by states would rise $700 million, due mainly to the shift of Medicare enrollees to Medicaid, which is funded by the federal government and states.
3. Higher out-of-pocket costs for some seniors
Two-thirds of the seniors who would who move from Medicare to the public exchanges would face higher costs for health insurance premiums and cost-sharing. These are the seniors with income above 300 percent of the federal poverty level. Their higher annual out-of-pocket costs would range from $1,200 to $4,300.
Meanwhile, less affluent seniors moving to the exchanges (one third of the total) actually would see their out-of-pocket costs fall -- some would receive exchange subsidies, while others would move to Medicaid, which is almost entirely cost-free to patients.
4. Higher Medicare premiums
Moving younger seniors off Medicare would boost the price of Medicare's Part B premium by 3 percent in 2014, according to KFF. The 2013 premium is set for $104.90 per month, which would mean a rise of about $3.15 per month in higher costs attributable to a higher eligibility age.
5. Higher exchange premiums for younger enrollees
Premiums for adults under age 65 in public exchanges would also rise by 3 percent in 2014 - to about $141 per month per enrollee - due to the shift of seniors into the risk pool.
While some of the increases in out-of-pocket costs may sound small, it's worth remembering that most seniors live on fixed incomes -- and that the average annual income of a Medicare beneficiary is just $22,000.
Notes Cubanski: "We're talking about people living on limited incomes -- the average is only twice the poverty rate."
(The writer is a Reuters columnist. The opinions expressed are his own. For more from Mark Miller, see link.reuters.com/qyk97s)
(Follow us @ReutersMoney or here. Editing by Beth Pinsker Gladstone and Kenneth Barry)