The Congressional Budget Office released a report Tuesday assessing the effects of making workers wait longer before they collect Medicare and Social Security benefits -- an idea that has been gaining increasing currency in Washington as a way to curb the growth in federal spending.
The House voted last year, 235 to 193, to increase the eligibility age for Medicare by two months per year, starting in 2022, until it reached 67 in 2033. The idea was part of the House Republicans’ fiscal year 2012 budget plan.
The Senate voted, 57 to 40, against moving ahead to debate the plan, essentially killing it, but President Obama reportedly accepted the concept of raising the Medicare eligibility age during last summer's negotiations with House Speaker John Boehner.
The Bowles-Simpson fiscal commission recommended increasing the eligibility age for Social Security retirement benefits to age 69 in its December 2010 report. Republican presidential front-runner Mitt Romney has called for increasing the Social Security eligibility age, but not for anyone who is now close to retirement.
Why make workers wait before collecting benefits? The CBO’s answer: “Life expectancy has increased and disability rates among older people have declined, and raising the ages of eligibility would reduce federal outlays and, because people would have more incentive to remain in the workforce longer, (would) increase revenues.” This would help forestall a national debt crisis, the CBO said.
The CBO report found that raising eligibility age would reduce federal spending, but maybe not by as much as some fiscal hawks would hope.
The familiar balloon metaphor applies here: squeezing costs in one part of the health care system would lead to a bulge of increased costs elsewhere.
Some of the savings achieved by pushing up the Medicare eligibility age would be offset by more spending on Medicaid, the health care program for the poor.
The CBO figures that net federal savings from raising Medicare’s eligibility age to 67 would be $113 billion over the next decade.
How big a number is that $113 billion, compared to future deficits? Under CBO’s alternative fiscal scenario, which assumes that Congress won’t increase income tax rates to 2000 levels and will postpone certain cuts in Medicare payments to doctors, the cumulative ten-year deficits would amount to $8.5 trillion.
So $133 billion is only about 1.5 percent that cumulative shortfall.
It’s worth noting that the CBO analysis assumes that the 2010 health care law remains in effect and that some of the people not able to get Medicare benefits would be covered and subsidized under the new health insurance exchanges.
But if “Obamacare” were repealed or struck down by the Supreme Court and Congress raised Medicare eligibility age, then, the CBO report said, “many more people would become uninsured.”
Boston University health care economist and statistician Austin Frakt said on his blog The Incidental Economist that increasing the Medicare eligibility age would have negative effects: for one, it would lead employers to spend an additional $4.5 billion to cover those who would otherwise be on Medicare. He also said premiums in the health insurance exchanges and for Medicare “would go up because the average age of both groups would be higher causing the risk pool of both to be less healthy.”
Jason Fichtner, an economist at the Mercatus Center at George Mason University, said raising the Medicare eligibility age “is only going to be a part of a strategy” of controlling entitlement spending and is secondary in importance to controlling the actual outlays on medical care.
As for Social Security, CBO considered a scenario in which Congress nudged up by a few months the age at which people born in 1950 or after could collect full retirement benefits and gradually raised the full Social Security retirement age to 70 for workers born in 1973 or later. Doing this would reduce Social Security outlays by 4 percent by 2035 and by 13 percent by 2060. The CBO estimates that the size of the labor force and the national income in 2035 would be about 2 percent larger than under current law, as older people remained in the work force.
But the CBO said the increase in the retirement age “would be particularly burdensome for people with low income, who tend to rely heavily on Social Security benefits, and especially for those who could neither qualify for DI (disability insurance) nor adjust their work patterns.”
But Fichtner said providing an incentive for more people to remain in the labor force “is a good thing. From the employer’s standpoint, if they’ve got pay two more years of health care benefits and salary, but they’re getting a productive employee, that’s a good thing.”