Raising The Medicare Age May Be Good GOP Politics

But Single-Payer Is The Better Solution For All Americans

By Rick Ungar for Forbes –

As the GOP pursues its ‘War on Entitlements’ as a part of the fiscal cliff ballet, the notion of raising the age for entering Medicare has been gaining steam as a focal point of reform for the financially stressed government health care system.

Perpetual Sunday morning talker, Senator Lindsey Graham, summed it up on a recent “ABC’s This Week” installment when noting, “I don’t think you can look at entitlement reform without adjusting the age for retirement. Let it float up another year or so over the next 30 years, adjust Medicare from 65 to 67.”

Even President Obama is said to have put the notion of raising the Medicare age on the table in his failed negotiations with Speaker John Boehner during the 2011 debt ceiling debacle.

From a political perspective, this may sound like a plan whose time may have come as most would acknowledge that today’s 65 year old is significantly ‘younger’ than the 65 year old of days gone by. What’s more, raising the age of Medicare would set a precedent that would, no doubt, hasten a rise in the Social Security age.

However, when you begin to measure the impact of upping the age for Medicare on the population as a whole, a different picture begins to emerge—one that would have a negative impact on virtually all Americans, no matter what their age.

Here’s the good news:

According to the Congressional Budget Office, immediately increasing the Medicare age to 67 would save about 5% in the annual Medicare budget—not an insignificant amount of money. Such a move would also have a positive impact on general tax revenues as more 65 and 66 year olds would remain in the work force in the effort to protect their company-provided healthcare benefits or, if they are self-employed, continue earning enough money to pay for their private health insurance premiums for an additional two years.

But then comes the bad news:

With any significant savings to a large government program, there is always a counter-balancing cost to someone. In this case, the cost of saving Medicare that annual 5 percent would reverberate throughout the entire healthcare system in such as way as to negatively impact on virtually everyone with a health insurance policy.

Why?

By denying coverage to the 65 and 66 year olds—who currently form the youngest group in the Medicare insurance pool—we are removing the healthiest people from the Medicare insurance equation. That is never a very good idea when attempting to maintain a balanced insurance pool.

For anyone who understands the actuarial “roots” of insurance, it goes without saying that when you remove the healthiest from the pool—and the premium payments they contribute which are far more likely to be used to pay for someone else’s healthcare then the premiums paid by older participants—it requires that the absence of the premiums previous paid by those least likely to require as much healthcare be spread among everyone else in the pool.

The bottom line is an increase in the premium costs to everyone else in the Medicare program.

That might not trouble Americans who believe that the seriousness of the Medicare financial problem requires sacrifice—and that the sacrifice should come from those who most benefit from the program.

But this might—

By removing 65 and 66 year olds from a Medicare program where they are the youngest and least likely to use Medicare funds to pay for their illnesses, we are placing them back into the private insurance pool where they instantly become the oldest and, therefore, the most likely to get sick. And while the inescapable and obvious result is that increased financial pressure is placed on the private health insurance system at the expense of removing some of the financial pressure on the government run Medicare system, what may not be quite so obvious is the additional financial pressure placed on even the youngest and healthiest people in the private health insurance pools.

As a result of the Affordable Care Act, health insurers will soon be barred from charging their older, individual policy customers as much as 5 to 10 times more than what they charge their youngest members. Indeed, according to the regulations put out for review last week by HHS, the maximum multiplier for those at the upper ranges of the insurance pool is limited to three times what is charged for the youngest members—an element of the law that, while reducing the financial burden on those at the upper end of the age scale, will put additional strain on the nation’s youngest and healthiest health insurance customers as their premiums will reflect the increases resulting from the limitation placed on what an insurance company can charge the oldest—and most costly—members in their insurance pool.

Thus, the bottom line to dropping 65 and 66 year olds from Medicare means that money is not really being saved so much as costs are being shifted away from the government program and onto the shoulders of virtually every single American. Those in the Medicare program will be forced to pay higher insurance premiums. The affected 65 and 66 year olds will be forced to pay much higher premiums in the private market. Companies that employee 65 and 66 year olds will see an increase in their health care benefit contributions. And those younger than 65 with private health insurance will pick up an even larger premium cost as a result of adding a bunch of people to their pool more likely to get sick.

So, while this approach may sound good from a political perspective in that those who benefit from Medicare are being asked to contribute a bit more for the privilege of participating in this popular program, the reality is that everyone is paying the price—whether they are a Medicare beneficiary or not.

There may be a better way—one that requires setting aside some of the ideology that prevents us from acting rationally in favor of creating policy that could be a win-win for all involved.

Rather than reduce the number of people who can participate in Medicare, why not increase it? Would this not have the opposite effect on the system than the effect we would see by narrowing participation?

Were we to lower the age of qualification for Medicare we could—

– Bring substantially more money into the Medicare pool via the premium payments ponied up by all the additional people in the system who are younger, healthier and, therefore, far less likely to call upon the system to pay for expensive illnesses.

– Remove older people from the private insurance system, making premium costs substantially lower for those who remain in the private insurance pools.

– Place more people in a system (Medicare) where the administration costs run at about 2-3 percent compared to the 13-15 percent administrative costs found in the private insurance business.

– Adjust premiums for younger participants in Medicare so that they are paying at the high end of the Medicare scale while still paying less than what they would be charged in the private markets—thereby allowing Medicare to pay medical providers a higher rate for treating the younger classification of participants.

– Allow employers some relief from the impact of being responsible for the health care benefits of older employees, thereby helping to keep their employee healthcare benefit costs down.

Yes, such a move would bring us closer to a government, single-payer health care system. However, if you’ve been paying attention, you know that America’s largest employers are already pushing us in that direction—whether you wish to go there or not.

Last week, we learned that Wal-Mart is going to cut health care benefits for employees working less than 30 hours per week (and plan to adjust worker schedules to increase the number of employees working fewer hours), sending many of their workers into the Medicaid system where the taxpayer will be paying the bill. The result is that America’s largest employer will be relieving itself of the responsibility to provide coverage to its employees while asking American taxpayers to subsidize their profits by doing the job for them. Of course, by now most of us are familiar with similar plans expressed by many of the fast food and other companies throughout the nation.

If American business is going to push us towards single payer—without making a contribution of their own to such a system—why not begin the process of formalizing the inevitable by widening the Medicare program rather than shrinking it?

If we really seek the savings that come from reforming our entitlement programs, the time has come to include every possible option rather than those which ‘fit’ a particular ideological bend.