CBO Lowers Estimate for Increasing the Medicare Eligibility Age

Yesterday, the Congressional Budget Office (CBO) dramatically lowered its estimate of savings if policymakers chose to increase the Medicare eligibility age from 65 today to match Social Security's full retirement age of 67. Last year, CBO estimated that increasing the age would generate $113 billion in savings over 10 years. They've reduced that estimate by nearly 85 percent (their estimate of the savings to Medicare dropped by roughly 60 percent and their estimate of new spending remained similar), and now say that raising the age will result in only $19 billion in savings.

The reason for the dramatic change stems from CBO taking a closer look at the group of people who would be affected by the change — 65- and 66-year olds who would have to wait until they turned 67 to claim Medicare, instead of starting the program at 65. To estimate the cost savings to Medicare for the 65- and 66-year olds whose enrollment would be delayed under this proposal, CBO previously looked at all 65- and 66-year olds in Medicare, including those who are in the program because they are disabled or suffer from end-stage renal disease (ESRD) and would not be affected by this proposal. Beneficiaries with disabilities or ESRD, however, require extensive care, are less likely to have access to employer-provided health insurance, and are far more expensive to cover than the average 65- or 66-year old. 

In updating their analysis, CBO honed in on only the beneficiares who would be affected by the change -- the 65-year olds enrolling for the first time. This group is much healthier, and usually still has health coverage from their employer. In these cases, a person's employer-provided insurance still pays most of the costs, and Medicare is usually only a secondary payer. Providing Medicare to these folks is not nearly as expensive as for enrollees with disabilities or ESRD, and therefore raising the Medicare age so they are not covered does not save nearly as much as previously thought.

Raising the eligibility age for Medicare would also increase spending on Medicaid and exchange subsidies, but "CBO's estimate of the extent to which this option would increase federal spending for Medicaid and exchange subsides has not changed significantly."

Breakdown of Estimate for Raising Medicare Age (billions)
  2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2014-2023
Medicare $0 $0 -$1 -$3 -$4 -$6 -$8 -$11 -$14 -$17 -$64
Other Health $0 $0 $1 $2 $3 $4 $6 $7 $8 $10 $41
Revenue $0 $0 $0 $0 $0 $0 $1 $1 $1 $1 $4
Total $0 $0 $0 -$1 -$1 -$1
-$2 -$3 -$5 -$7 -$19

Source: CBO
Note: Negative numbers denote deficit reduction

CBO's revision shows the value of closely examining and re-examining policy changes, and highlights the uncertainty of all budget estimates. This also reinforces the need to be conservative in budget assumptions and to work to put the debt on a clear and robust downward path.