Medicare At 60 Would Have Harmful Unintended Consequences

Unintended Consequences Of Medicare-for-All

Source: STAT News, by Tom Church and Daniel L. Heil

In an era of rising inflation and trillion-dollar deficits, there appears to be growing bipartisan support for fiscal restraint. President Biden’s recent budget proposal featured more than $1 trillion in deficit-reducing policies. And his administration is now promising that the proposals once comprising the president’s Build Back Better agenda will be, at worst, deficit neutral.

But despite the changing fiscal environment, many in Congress are still eager to enact a costly and risky expansion of Medicare.

This idea seems simple: lower the eligibility age of Medicare from 65 to 60 to make out-of-pocket health care costs and premiums more affordable for millions of Americans. Supporters of the idea point to Medicare’s popularity among the elderly and argue that the policy would extend coverage at the stage of life when health care costs begin to rise.

This seemingly simple idea, however, would come with significant downsides and unintentional consequences. With support from the Partnership for America’s Health Care Future, we scored the distributional and fiscal impacts of lowering Medicare’s eligibility age on both the newly eligible population and on health care providers.

Expanding coverage wouldn’t be cheap. We estimate that the federal deficit would rise by as much as $42.6 billion in the first year of the program and $452 billion over its first 10 years — not counting increased interest costs to the federal government.

But the fiscal costs are only part of the story. Medicare at 60 poorly targets those in need and relies on cost-shifting to hide its true cost.

One of the justifications for lowering the eligibility age for Medicare is to help those in need of purchasing health insurance. Yet our analysis finds that compared to the 18- to 59-year-olds who would remain ineligible, the newly eligible population would be less likely to be uninsured and more likely to have incomes above 400% of the federal poverty line.

And even among the newly eligible, it is far from clear whether the policy would help low-income Americans. Many of these individuals are already receiving health care subsidies through the Affordable Care Act, so shifting them to Medicare could mean higher premiums and increased out-of-pocket spending. We estimate that 36% of Affordable Care Act enrollees would see their combined premiums plus out-of-pocket spending rise under Medicare at 60. Even worse, the group most likely to see their combined costs rise are those with incomes between 150% to 250% of the federal poverty line. Conversely, 90% of ACA recipients with incomes above 400% of the poverty line would see their combined costs fall under Medicare at 60.

There’s one other group that would be financially affected by Medicare at 60: doctors, hospitals, and other health care providers. Previous efforts to rein in growing costs have focused on paying physicians and hospitals less for their services, and Medicare at 60 is no different.

The issue is that physicians and hospitals receive less for providing the exact services to patients covered by Medicare or Medicaid than they receive for those who are privately insured. Medicare at 60 would shift more reimbursements from private rates to government-mandated Medicare rates, resulting in revenue cuts for health care providers.

Actuaries at the Centers for Medicare & Medicaid Services project that, under current law, reimbursement rates for Medicare services relative to private insurers will continue to fall. In the absence of cost-cutting measures or large increases in utilizations, reductions in inpatient hospital service payments from Medicare at 60 would reduce annual profits by about 25% for the median hospital and by even larger amounts for hospitals with below-average margins. Physicians would be less affected in the short term, but face steeper growth in cuts in the long term.

These cuts would have significant financial effects on hospitals and providers. Congress’s past behavior suggests these cuts may not come to fruition. From 2003 to 2014, Congress repeatedly overrode scheduled cuts to providers as part of the near-annual legislation that came to be known as the “doc fix.” But if Congress succumbs to political pressures and prevents reimbursement rates from falling any further, we estimate the fiscal cost of Medicare at 60 would rise by $72 billion during the 10-year budget window. The trade-off is inevitable: either Medicare at 60 will mean steep revenue cuts for physicians and hospitals, or much higher costs for taxpayers.

Lawmakers are now admitting that the federal government faces a genuine budget constraint. That makes it an odd time to think about expanding Medicare to 60-to 64-year-olds. Even under optimistic fiscal assumptions, the proposal would add billions to federal deficits, while poorly targeting those in need and straining the finances of hospitals and physicians.

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An Argument for Deregulating the Exhcanges

Running an Obamacare health-insurance exchange can present such formidable and costly challenges that Hawaii, New Mexico, Rhode Island, and other states are considering shutting theirs down and defaulting to the federal exchange, just as Oregon did last year. But even the federal exchange is plagued with serious problems—including trouble verifying the income of applicants, checking their eligibility for state Medicaid programs, and determining whether or not workers’ employers offer affordable, qualified insurance.

One simple solution would solve these and other Obamacare problems overnight, according to health policy expert John C. Goodman, author of the new book A Better Choice: Healthcare Solutions for America (Oakland, Calif.: The Independent Institute).

Goodman suggests deregulating and denationalizing the exchanges, and converting the tricky-to-calculate Obamacare tax credits into a tax credit that is the same for everyone, independent of income. “With a universal tax credit, all these problems go away,” Goodman writes.
Goodman argues that ending the Obamacare mandates and subsidies and adopting a uniform tax credit (equal to the cost to Medicaid of a new enrollee) would end the perverse incentives that encourage employers to keep the number of workers on their payroll small, to switch full-time workers to part-timer status, or to rely heavily on independent contractors and temp workers.

Goodman’s book also recommends converting all the various medical savings accounts into a more consumer-friendly Roth health savings account; allowing everyone the right to buy Medicaid or opt out of it and to use the money to buy private insurance; and encourage insurers to offer plans that cover changes in a consumer’s health status

Non-Recurring Health Services Are Most Costly to Retirees

A study by the Employee Benefit Research Institute (EBRI) looked at how retirees spend their out-of-pocket money on health care. Recurring health-care services remain stable throughout retirement while non-recurring ones increase with age and tend to be more expensive.

Sudipto Banerjee, EBRI research associate and author of the report said, “Health care…is the only part of household expenditures that increases with age. While some of these costs are more predictable, others are uncertain, and for many people these expenses spike toward the end of life when resources are slim. To successfully manage your resources in retirement, a good plan may include separate preparations for each.”

In 2011, average annual out-of-pocket health care cost for a household with members 65 to 74 years old was $4,383, accounting for 11% of total household expenses. That increases for households ages 85 and above to $6,603 a year, or 19% of total household expenses.

The average annual expenditure for recurring health care expenses was $1,885 among the Medicare eligible population. Assuming a 2% rate of inflation and 3% rate of return, a person with a life expectancy of 90 would need $40,798 at age 65 to fund their recurring health care expenses. This does not include expenses for insurance premiums or over-the-counter medications.

Non-recurring health care services increase with age. In particular, nursing-home stays can be very expensive. Not surprisingly, the costs of nursing home stays, home health care, and overnight hospital stays are much higher in the period preceding death. More than 50% in every age group above 65 received in-home health care from a medically trained person before death. For those 85 and above, 62.3% had overnight nursing-home stays before death and 51.6% were living in a nursing home before death. Women over 85 have significantly higher nursing-home use. But the rest of the differences between men and women are small

Last Updated 05/25/2022

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