The growing financial burden of baby boomer retirement is increasing the urgency to rein in entitlement spending.
Despite the issue’s sensitivity, 2016 presidential candidates, particularly Republicans, are using the issue to distinguish themselves. Chris Christie has proposed an increase in the eligibility age for Medicare and Social Security as a means of cutting future expenditures. Jeb Bush and Marco Rubio have spoken favorably of Christie’s proposal, and other candidates, including Rand Paul and Ted Cruz, have supported the idea in the past. Indeed, the idea of increasing Medicare’s eligibility age has been part of entitlement reform discussions among both Democrats and Republicans for many years.
A common justification for an older eligibility age is the significant increase in life expectancy among the elderly since Medicare began in 1965. Yet while the logic behind these proposals is relatively easy to understand, several facts point to potential unintended consequences.
A higher eligibility age could hurt lower-income beneficiaries
Epidemiologists and demographers have noted large health inequities in the United States and that life expectancy gains have not been shared equally among all elderly Americans. Some groups have experienced no gains in life expectancy for several decades. Thus, a two-year wait for benefits could prove more detrimental for low-income populations and minorities than it does for higher-income groups and non-Hispanic whites.
Reduced Medicare spending would shift to other government programs
The most recent estimates from the Congressional Budget Office highlighted that federal Medicare savings would be greatly offset by increases in other federal spending. Similarly, new research from the Urban Institute, supported by a grant from The SCAN Foundation, shows that increasing Medicare’s eligibility age would increase financial burdens on state governments.
Health care for recipients of both Medicaid and Medicare benefits (dual eligibles) could become the sole responsibility of Medicaid, a program for which states share financial responsibility with the federal government. Our report found that while many of these beneficiaries would retain Medicare benefits due to disability, if the eligibility age were raised to 70, nearly one million could lose Medicare coverage while retaining Medicaid benefits.
The resulting shift in financial responsibility could be large. States’ share of Medicaid costs would increase by an estimated $369 million per year if the Medicare eligibility age is increased to 67 and $1.9 billion per year if the eligibility age is increased to 70.
How could the change affect states?
The financial effect depends on several factors that vary from state to state, including demographic composition, the share of total Medicaid expenditures for which the state is responsible, and whether the state has expanded the income eligibility threshold for Medicaid under the Affordable Care Act.
If a state has expanded Medicaid to cover those with incomes up to 138 percent of the federal poverty level, a larger share of those losing Medicare coverage could qualify for Medicaid. In states that did not expand Medicaid, individuals could lose insurance coverage entirely or face very high premiums unless the ACA were changed to allow persons over 65 to enroll in marketplace plans. If the Medicare eligibility age were increased to 70, we estimate that the largest increases in state Medicaid spending relative to current levels would be seen in Nevada (3.1 percent increase), California (2.8 percent increase), and Florida (2.4 percent increase).
The pressure to make changes in entitlement programs is unlikely to subside, but our findings suggest that seemingly logical policy choices may not only be less effective at reducing spending than one might hope, but could lead to potentially damaging consequences for vulnerable groups and for state finances.