By Emily Ethridge, CQ Roll Call
October 24, 2013 -- The Congressional Budget Office (CBO) said last week that raising the Medicare eligibility age to 67 from 65 would save the government $19 billion over 10 years—less than one-fifth of previously estimated savings.
The significant drop in savings is primarily due to CBO's new assessment that the people whose eligibility would be delayed would not have cost Medicare as much as previously projected because they are in better health or have other insurance coverage. In addition, many would qualify for Medicaid or for enrollment in a health insurance exchange, increasing costs in those programs.
The finding may affect how lawmakers evaluate changes to Medicare, especially as a budget conference committee meets and discusses changes to entitlement programs. House Budget Committee Chairman Paul D. Ryan, R-Wis., has included the concept in his budget proposals, and the idea also surfaced during negotiations over how to avoid the fiscal cliff in late 2012.
President Barack Obama entertained the idea of raising the eligibility age during debt limit negotiations in 2011, but many Democrats have said they would not support it.
In its analysis, CBO looked at raising the eligibility age by two months every year, beginning with people who were born in 1951, until the eligibility age reaches 67 for people born in 1962.
Doing so would reduce the deficit by $19.1 billion between 2016 and 2023, with no effect on the deficit in 2014 and 2015, the CBO found. That represents a net effect of a $23 billion decrease in outlays, and a $4 billion decrease in revenues over that period.
While spending on Medicare benefits would drop, those savings would be offset by increases in federal spending for Medicaid and on subsidies for consumers purchasing insurance through the health care law's (PL 111-148, PL 111-152) insurance exchanges, as well as reduced revenues, the CBO said.
Many people who would have otherwise joined Medicare would instead get coverage through Medicaid or through the health insurance exchanges, which would increase spending for both those programs, the CBO found.
By 2023, spending on Medicare would be about 3 percent less under this option than it would be under current law, the CBO found. Medicare spending would be 4.7 percent of the gross domestic product, rather than 4.9 percent.
"CBO projects that roughly two-thirds of those long-term savings from this option would be offset by the increases in federal spending for Medicaid and exchange subsides and the reduction in revenues described above," the office said.
As recently as January 2012, the CBO estimated that raising the eligibility age to 67 would save $113 billion over 10 years.
The drop came from CBO's new judgment that the would-be beneficiaries—those who would have enrolled at age 65—tend to be in better health and are "substantially less expensive, on average" than beneficiaries who are already in Medicare before turning 65.
In addition, many of those beneficiaries between 65 and 67 continue to have employer-based health insurance on their own or through their spouses, and use Medicare as a second payer for coverage.
"Medicare spends much less on Part A services for those beneficiaries than it does for beneficiaries for whom Medicare is the primary payer, and it does not pay for services covered under Parts B and D," CBO found. Part A is for hospital care, while Part B is for physician services and Part D for prescriptions.
CBO now estimates the net costs of those beneficiaries to Medicare, under current law, is about 60 percent lower than what it previously estimated. That results in a much smaller reduction in Medicare spending than previous estimates, and thus lower savings overall.
The office's estimate of what such a change would do to increase spending for Medicaid and the insurance subsidies has not changed much, however.
Raising the eligibility age also would slightly increase the number of uninsured Americans, the CBO found.
Of the 5.5 million people who would be affected by the age change in 2023, about 50 percent would get insurance through an employer, 15 percent would continue to qualify for Medicare on the basis of disability, 15 percent would buy insurance through the exchanges or the non-group market, 10 percent would get Medicaid coverage and 10 percent would be uninsured, the office said.