The aging baby boom, rising health care costs, and increasing life expectancy have led to concerns about increases in the cost of Medicare and the long term solvency of Social Security. The age of eligibility for full Social Security retirement benefits (often called the normal age of retirement or NAR) was raised from 65 to 67 as part of a 1983 package to achieve long term solvency for Social Security.
Proposals raising the Medicare eligibility age (MEA) to 67 in conjunction with Social Security's current law age increase or raising both the NAR and MEA to age 70 have been suggested as ways to help contain spending and extend the solvency of both Medicare and Social Security. These proposals are explored in a study by Dave Wittenburg et al., of The Lewin Group, entitled "Increasing the Age of Eligibility for Social Security and Medicare: Projected Impacts on Medicare and Social Security Disability Insurance from 2000-2040." (PPI #2000-15)
The study projects the impact of an increase in the MEA on Social Security Disability Insurance (SSDI) participation, Medicare eligibility, and Medicare expenditures using two scenarios:
- Raise the MEA to 67 by 2022 following the current law increase in the NAR.
- Raise both the MEA and NAR to 70 by 2040 following the current law increase to 2022 and then continuing the pattern with a two-month-per-year increase to 2040.
The study uses a highly detailed methodological approach. The base simulations include data from two surveys: the 1992 and 1993 Survey of Income and Program Participation (SIPP),1 and the Medicare Current Beneficiary Survey (MCBS).
For the simulations, it was assumed that the Disability Insurance (DI) participation and Medicare eligibility patterns of those age 55 through 64 in 1993 could be used to simulate outcomes for older populations in 1993 had the NAR and MEA been raised before 1993. It was also assumed that those in the affected age range would be able to qualify for SSDI and Medicare under the same rules as apply to those under age 65 today.
The study found that an increase in the NAR and MEA would have significant impacts on Social Security beneficiaries and Medicare-eligibles.
If NAR and MEA are fully phased in to age 67 in 2022 (current law for Social Security):
- 15.4 percent of the population age 65 through 66 (about 1.33 million people) would retain their Social Security benefits under DI;
- 14.9 percent (1.3 million people) would retain their Medicare eligibility under DI or End Stage Renal Disease (ESRD); and
- Medicare expenditures for those who retain eligibility via SSDI or ESRD would be $12.1 billion, or 32.3 percent of what Medicare expenditures for those age 65 through 66 would have been were the NAR and MEA both age 65.
If NAR and MEA are fully phased in to age 70 in 2040:
- 15.9 percent of those age 65 through 69 (about 2.9 million people) would retain their Social Security benefits under DI;
- 15.1 percent (about 2.8 million people) would retain their Medicare eligibility under DI or ESRD; and
- Medicare expenditures for those who retain eligibility via SSDI or ESRD would be $36.8 billion, or 35.4 percent of what Medicare expenditures for those age 65 through 69 would have been were the NAR and MEA both 65.
Said another way, the study projections show that if the MEA were raised commensurate with NAR, Medicare costs for the age 65 through 66 or 65 through 69 cohorts would be reduced substantially. The study also shows that although nearly six out of seven beneficiaries in the study cohort would lose their Medicare, those who retain their benefits because they qualify for DI or ESRD have the highest health care expenses and thus the savings are not as great as they would be under those proposals using a reform that would affect all beneficiaries equally.
The demographic pressure of the baby boom, along with the changes in the overall health care system, require that Medicare continue to develop more cost-effective approaches to delivering health care while maintaining quality and affordability. Proposals for Medicare changes offer both opportunities and risks. This study highlights the importance of thoroughly examining proposals to restrict eligibility by age and their effects before taking legislative action.
- The SIPP includes detailed demographic, health, income, and program participation information for a nationally representative sample.
- The MCBS provides information on Medicare-eligible DI beneficiaries, Old Age and Survivors Insurance (OASI) beneficiaries who were Medicare-eligible before they aged into OASI and institutionalized individuals.
Source: The Lewin Group, David C. Wittenburg, David C. Stapleton, and Scott Scrivner
Laurel Beedon, Project Manager, AARP Public Policy Institute
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