Raise the Age of Eligibility for Medicare to 67

Background

Under current law, the usual age of eligibility to receive Medicare benefits is 65, although younger people generally may enroll after they have been eligible for Social Security disability benefits for two years. The average number of years that people are covered under Medicare has increased significantly since the program's creation because of a rise in life expectancy. In 1965, when Medicare was established, a 65-year-old man could expect to live another 12.9 years, on average, and a 65-year-old woman another 16.3 years. Since then, life expectancy for 65-year-olds has risen by more than four years—to 18.2 years for men and 20.7 years for women. That trend, which results in higher program costs, is projected to continue.

Option

This option, which consists of two alternatives, would raise Medicare's eligibility age (MEA) to 67.

• Under the first alternative, the MEA would rise by two months each year, beginning in 2023 (when people born in 1958 will turn 65). It would continue to increase until it reached 67 for people born in 1969. (That cohort will become eligible for Medicare benefits in 2036.) The MEA would remain at 67 thereafter.
• Under the second alternative, the MEA would increase by three months each year, beginning in 2023, until it reached 67 for people born in 1965. (That cohort will become eligible for Medicare benefits in 2032.) It would remain at 67 thereafter.

Under the two alternatives, the MEA would rise to match Social Security's full retirement age (FRA), the age at which workers become eligible for full retirement benefits. (People can claim reduced retirement benefits—but not Medicare benefits—starting at age 62, which is the most common age to do so.) The FRA has already been increased from 65 to 66 and is scheduled to rise further during the coming decade, reaching 67 for people born in 1960 (who will turn 67 in 2027). The MEA would remain below the FRA until 2036 under the first alternative and until 2032 under the second alternative.

In addition, under the Affordable Care Act (ACA), states are permitted to expand eligibility for Medicaid to adults under the age of 65 whose income is no more than 138 percent of the federal poverty guidelines. The estimates in this option reflect the assumption that the age limit for people made eligible for Medicaid by the ACA would increase in tandem with the MEA.

Effects on the Budget

Implementing either of the two alternatives would reduce federal budget deficits between 2023 and 2028, according to estimates by the Congressional Budget Office and the staff of the Joint Committee on Taxation (JCT). The net reduction in deficits would result from the combined effect of changes to outlays and revenues, both of which would decrease over that period. The reduction in outlays would stem from decreases in spending for Medicare and Social Security (although it would be partially offset by increases in federal subsidies for insurance purchased through the marketplaces established under the ACA and related spending for Medicaid). The reduction in revenues would largely stem from increases in federal subsidies for insurance purchased through the marketplaces, a portion of which is provided in the form of reductions in recipients' tax payments.

CBO and JCT estimate that under the first alternative, deficits would decrease by $15 billion between 2023 and 2028; that reduction comprises an $18 billion decrease in outlays and a $3 billion decrease in revenues. The agencies estimate that under the second alternative, deficits would decline by an additional $7 billion over the same period because the decrease in outlays and the partially offsetting decrease in revenues would be $8 billion and $1 billion greater, respectively. The estimated reduction in deficits between 2023 and 2028 would be greater under the second alternative because of a larger reduction in Medicare enrollment over that period.

Effects on Medicare. Raising the MEA would lower Medicare outlays by reducing the number of people enrolled in the program at any given time when compared with enrollment under current law. In calendar year 2023, when this option would take effect, about 3.6 million people will become eligible for Medicare coverage on the basis of their age under current law. That group would see its benefits delayed by two months under the first alternative and by three months under the second alternative. In calendar year 2028, under current law, about 3.7 million people will turn 65 and enroll in Medicare; their benefits would be delayed by a year under the first alternative and by 18 months under the second alternative. As a result, total spending on Medicare between 2023 and 2028 would be lower than under current law by $42 billion under the first alternative and by $60 billion under the second alternative.

Effects on Social Security. Raising the MEA also would reduce outlays for Social Security retirement benefits over the 2023-2028 period because, in CBO's estimation, some people would delay claiming retirement benefits. The reduction over that period would be $4 billion under the first alternative and $5 billion under the second alternative. Under both alternatives, expenditures would be higher in later years because delayed claiming would lead to higher monthly benefits.

CBO anticipates that the reduction in Social Security spending would be fairly small because raising the MEA would have little effect on people's decisions about when to claim retirement benefits. Historical evidence indicates that people are more likely to wait until reaching the FRA to claim retirement benefits than they are to claim when they reach the MEA (Manchester and Song 2011).

CBO also expects future decisions about claiming retirement benefits to be less linked to the MEA than has historically been the case because of greater access to health insurance through Medicaid and through the nongroup market (insurance purchased directly either in the health insurance marketplaces or from insurers outside the marketplaces). Increased access through Medicaid stems from a provision of the ACA that permits, but does not require, states to expand eligibility to include low-income adults under age 65. In the nongroup market, that increased access stems from subsidies for plans purchased through the marketplaces and from the provision that prevents insurers from denying coverage or varying premiums on the basis of an enrollee's health status. (Insurers are, however, permitted to vary premiums on the basis of enrollees' age, tobacco use, and geographic location.) As a result, it is now easier for some people who give up employment-based insurance upon retirement to qualify for Medicaid or to purchase health insurance in the nongroup market, in some cases with a federal subsidy.

Effects on Federal Subsidies for Health Insurance Outside of Medicare. Although raising the MEA would generate savings for Medicare and Social Security, those savings would be offset substantially by increases in federal spending and by decreases in revenues. That is because, in CBO's estimation, a sizable share of people who, under current law, would enroll in Medicare upon turning 65 would enroll instead in federally subsidized health insurance—such as Medicaid, insurance through the nongroup market, or employment-based insurance—between age 65 and the new MEA.

CBO estimates that in 2028, about 45 percent of the people affected by this option would obtain insurance from their own or a spouse's employer or former employer, about 20 percent would purchase insurance through the nongroup market, about 20 percent would receive coverage through Medicaid, and about 15 percent would become uninsured. (To develop those estimates, CBO examined data on the patterns of health insurance coverage among people a few years younger than the MEA. The figures were then adjusted to account for changes in sources of health insurance and in participation in the labor force as people age.)

Raising the MEA would increase federal outlays for Medicaid for two groups of people between the age of 65 and the new MEA: "full duals" (Medicare beneficiaries who are also enrolled in Medicaid with full benefits) and Medicaid enrollees who were made eligible for that program by the ACA but who, under current law, would lose that eligibility once they qualified for Medicare at age 65. Because CBO assumed that the age limit for Medicaid would increase in tandem with the MEA under this option, Medicaid would remain the primary source of coverage for members of both groups until they reached the new MEA. As a result, federal outlays for Medicaid between 2023 and 2028 would be higher by $15 billion under the first alternative and by $20 billion under the second alternative, CBO projects.

Raising the MEA also would increase outlays for subsidies for health insurance coverage purchased through the marketplaces because some people, instead of obtaining Medicare coverage at age 65, would continue to receive or would obtain subsidized health insurance through the marketplaces when they were between age 65 and the new MEA. (Those federal subsidies cover a portion of participants' health insurance premiums.) In addition, the resulting increase in the average age of people purchasing health insurance coverage through the nongroup market would slightly increase premiums for all people enrolled in that market, which would in turn increase spending on subsidies for people purchasing subsidized coverage through the marketplaces. CBO and JCT estimate that, between 2023 and 2028, raising the MEA would increase outlays for subsidies for coverage through the marketplaces by $13 billion under the first alternative and by $19 billion under the second alternative.

Raising the MEA would lower revenues because a portion of the increase in marketplace subsidies for health insurance premiums would be provided in the form of reductions in recipients' tax payments. (The subsidies for health insurance premiums are structured as refundable tax credits; the portions of such credits that exceed taxpayers' other income tax liabilities are classified as outlays, whereas the portions that reduce tax payments are classified as reductions in revenues.) Revenues also would decline because of a small net increase in employers' spending on nontaxable health insurance benefits, which in turn would reduce collections of income taxes and payroll taxes. Raising the MEA would reduce revenues between 2023 and 2028 by $3 billion under the first alternative and by $4 billion under the second alternative, CBO and JCT estimate.

Uncertainty. The largest source of uncertainty in the estimate of savings over the next 10 years is CBO's estimate of the number of people between age 65 and the new MEA who would be enrolled in Medicaid or subsidized coverage through the marketplaces. CBO estimates that the majority of individuals affected by this policy change would not change their decision to work. If more individuals chose to delay retirement, however, more people between the age of 65 and the MEA would remain in employment-based insurance. That would reduce the number of people projected to enroll in nongroup insurance or Medicaid under both alternatives, which would reduce federal outlays. The net budgetary effects of those decisions, however, would depend on the income of the people who decided to keep working and whether or not they would qualify for alternative forms of subsidized coverage. Additionally, over time, fewer employers have been offering early-retiree health insurance to their employees. CBO estimates that this trend would continue, but it could accelerate or decelerate. Projecting a number of offers of such coverage that is too low would cause CBO to overestimate the number of people who would be enrolled in subsidized coverage through the marketplaces or Medicaid and therefore underestimate the savings from the option. Alternatively, projecting a number of offers that is too high would cause CBO to overestimate the savings from the option.

Longer-Term Effects. Over the longer term, deficits would continue to be lower under this option than they would be under current law. CBO estimates that, by 2048, spending on Medicare (net of offsetting receipts) would be about 2.5 percent less under this option than it would be under current law, amounting to 5.7 percent of gross domestic product rather than 5.9 percent under current law. In 2048, that effect would be almost identical under the two alternatives because the MEA would be identical in 2036 and subsequent years. On the basis of its estimates for 2023 through 2028, CBO projects that, under either alternative, roughly three-fifths of the long-term savings from Medicare would be offset by changes in federal outlays for Social Security, Medicaid, and subsidies for coverage through the marketplaces as well as by reductions in revenues.

Other Effects

An argument in favor of raising the MEA is that, as life expectancy increases, the increase in the MEA would help Medicare return its focus to the population it originally served—people in their last years of life—and support the services most needed by that group. CBO projects that by 2048, life expectancy for 65-year-olds will be 20.4 years for men and 22.8 years for women, compared with 12.9 years and 16.3 years in 1965. There is some evidence that, for many people, the increase in life expectancy has been accompanied by better health in old age (Chernew and others 2016). Those findings suggest that raising the MEA would not diminish the program's ability to provide health benefits to people near the end of life. However, individuals of lower socioeconomic status could be disproportionally affected by the higher MEA because the gains in life expectancy have not been uniform: In recent decades, life expectancy has generally increased more quickly for individuals with higher lifetime earnings (Waldron 2008).

An argument against raising the MEA is that it would shift costs that are now paid by Medicare to individual people, to employers that offer health insurance to their retirees, and to other government health insurance programs. In 2028, more people would be uninsured under this option—about 450,000 under the first alternative and about 600,000 under the second alternative, CBO estimates—and they thus might receive lower-quality care or none at all. Others would end up with a different source of insurance and might pay more for care than they would have as Medicare beneficiaries. Employers' costs of providing group plans for their retirees would increase because those plans would remain the primary source of coverage until the retirees reached the new MEA. In addition, states' spending on Medicaid and the federal costs of subsidies for health insurance purchased through the marketplaces would increase.

The net effect of raising the MEA on national health care spending is unclear because of the potential difference in costs borne by different payers to provide coverage for people between age 65 and the new MEA. One study showed that spending on some procedures declined when people switched from private health insurance to Medicare at age 65; that decline was driven mostly by price differences between private health insurance and Medicare (Wallace and Song 2016).