Raising the Medicare Age: A Popular Idea With Shockingly Few Benefits

Deficit hawks want to increase the Medicare age to 67, but that would only save $19 billion over 10 years — or 0.01 percent of cumulative GDP.


Increasing the Medicare age would barely save the government any money, and, to make matters worse, would increase overall healthcare spending. Other than that, Mrs. Lincoln, the policy is fine.

It may seem obvious that raising the Medicare age should save money. After all, the projected rise of the long-term debt is mostly about the projected rise of federal health-care spending. If we raise the Medicare age, Washington can wait longer to pay for seniors' health care, which means they'll pay less, overall.

Any time there's any chance for any kind of budget bargain, "grand" or otherwise, the discussion inside the Beltway inevitably turns to hiking the Medicare age. (Call it Peterson's Law: As a fiscal debate grows longer, the probability of a CEO proposing a higher Social Security and Medicare age approaches one). Right on cue, this got trial-ballooned during the debt ceiling talks in 2011, and then again during the fiscal cliff talks in 2012. Professional deficit hawks think of raising the Medicare age as a sign of seriousness. It's not so much about the money it saves as the message it supposedly sends markets: that the debt will be fixed.

Not that there's much money to be saved. The nonpartisan Congressional Budget Office (CBO) now estimates that gradually increasing the Medicare age from 65 to 67 would only save the government $19 billion between 2016 and 2023 — or 0.01 percent of GDP over that time. Nor would it save much more over the longer term; just 0.07 percent of GDP by 2038.

These estimates are actually much lower than the CBO's already-low ones from last year. Back then, it thought gradually increasing the Medicare age to 67 would save $113 billion by 2023. That's not a lot in the grand scheme of a $16 trillion economy that will be even bigger 10 years from now, but it's a whole lot more than what the CBO thinks now. So what changed?

The CBO realized that it overestimated how much Medicare spends on typical 65 and 66 year-olds. Its old estimates looked at average Medicare spending for all 65 and 66 year-olds. But some disabled and terminally ill patients get Medicare before they turn 65, and that wouldn't change if we raised the age to 67. So increasing the Medicare age eliminates Medicare benefits for the healthiest 65 and 66 year-olds, but not the sickest ones.

And even cutting Medicare benefits isn't the same as cutting government benefits. With Obamacare kicking in, some 65 and 66 year-olds would get Medicaid or exchange subsidies if they couldn't get Medicare. This other federal healthcare spending would offset a big chunk of whatever Medicare savings there were. It's federal cost-shifting, not cost-saving.

Now, it is true that Social Security spending would fall a bit too. If they couldn't get Medicare, some 65 and 66 year-olds would postpone retirement to keep their employer-provided healthcare. But not very many. As the CBO points out, most people retire when they want to, not when they can get Medicare. That means increasing the Medicare age wouldn't increase the labor force all that much.

Raising Medicare age seems like an obvious idea, because it's mentioned so often. But what exactly is so obvious about its benefits? Before Obamacare, it would have just shifted healthcare costs from the government to the healthiest seniors. That's not just morally questionable. It's also bad economically, since their private insurers would cost more than Medicare. After Obamacare, it would just shift healthcare costs from one part of the government to another — and some seniors would lose coverage altogether. That's worth $19 billion over ten years?