Raise the Age of Eligibility for Medicare to 67

The usual age of eligibility for Medicare benefits is 65, although certain people qualify for coverage earlier. (Medicare is available to persons under age 65 who have been eligible for disability benefits under Social Security for at least 24 months and to those with end-stage renal disease or amyotrophic lateral sclerosis.) Because of increases in life expectancy, the average length of time that people are covered by Medicare has risen significantly since the program began in 1965. That trend, which increases the program's costs, is expected to continue.

This option would raise the age of eligibility for Medicare by two months every year beginning with people who were born in 1949 (who will turn 65 in 2014) until the eligibility age reached 67 for people born in 1960 (who will turn 67 in 2027). Thereafter, the eligibility age would remain at 67. Those increases are similar to those already under way for Social Security's full retirement age (FRA)--that is, the age at which workers become eligible for full retirement benefits--except that scheduled increases in the FRA include a 12-year period during which the FRA remains at 66. (Unlike Medicare, with its single eligibility age, Social Security allows workers to receive a reduced retirement benefit as early as age 62. The vast majority of the eligible population chooses to claim Social Security benefits before reaching the FRA.) The eligibility age for Medicare would remain below Social Security's FRA until 2020, when both would be age 66 for people born in 1954; from that point on, the two would be identical.

By the Congressional Budget Office's estimates, this option would reduce federal spending by about $18 billion over the 2012-2016 period and by roughly $125 billion over the 2012-2021 period. Those estimates primarily reflect a reduction in federal spending on Medicare and a slight reduction in outlays for Social Security retire ment benefits. Those reductions would be partially offset by an increase in federal spending on Medicaid and an increase in federal subsidies to purchase health insurance through the new insurance exchanges that are scheduled to be established in 2014.

The option would reduce outlays for Social Security retirement benefits by inducing some people to delay their application for such benefits (some people apply for Social Security benefits at the same time they apply for Medicare) and by encouraging some people to delay retirement to maintain their employment-based health insurance coverage until they became eligible for Medicare. The option could also affect the number of people who apply for disability benefits; those effects are expected to be quite small and are not included in this estimate.

The increase in Medicare's eligibility age would boost federal spending on Medicaid in two ways. First, some of the people who were no longer receiving Medicare benefits would have income below 138 percent of the federal poverty level and would therefore sign up for and receive Medicaid benefits instead. (Under current law, that income threshold applies only to people under age 65, but for this option CBO assumed that that age limit would increase in tandem with the Medicare eligibility age.) Second, people over 65 who would have been enrolled in both Medicare and Medicaid (those for whom Medicaid pays Medicare's premiums and cost sharing, and covers certain services not covered by Medicare) would instead have Medicaid as their primary source of coverage until they reached the new Medicare eligibility age.

Subsidies for insurance coverage purchased in the new health insurance exchanges would also increase under this option because some of the people whose eligibility for Medicare was delayed would receive those subsidies instead.

Federal revenues under this option would decrease by a small amount over the 2012-2021 period; however, those effects are not included in this estimate. That decline in revenues would occur primarily because some employees and retirees whose eligibility for Medicare was delayed would accept coverage through their employer instead. (Active workers who are eligible for Medicare have the option of accepting or rejecting coverage from their employer; for those who accept such coverage, Medicare is the secondary payer.) Most of the resulting increase in employers' spending on health insurance would lead to reductions in taxable wages for active workers or would reduce employers' taxable profits; the remainder would probably be passed along to enrollees in the form of higher premiums. In addition, employers that provided retiree coverage to former workers before they became eligible for Medicare would incur higher costs to the extent that they provided such coverage over a longer period. Although the option could induce some employers to reduce or eliminate such retiree coverage, no changes of that sort are incorporated in this estimate. Federal revenues also would be reduced because a small portion of the subsidies provided through the health insurance exchanges are tax expenditures rather than outlays. CBO did not estimate any increase in tax revenues resulting from workers who delay retirement because total employment in the economy was assumed to remain unchanged; that assumption is consistent with CBO's standard approach to cost estimates.

By 2035, Medicare's spending under this option is estimated to be about 7 percent below what it would be in the absence of this policy change--5.5 percent of gross domestic product rather than 5.9 percent. On the basis of estimates for the 2012-2021 period, CBO anticipates that about one-quarter of those Medicare savings would be offset by the increases in federal spending described above.

A rationale for this option is that it would raise the eligibility age for Medicare to accompany increases in life expectancy. The option would restrain the growth of spending for Medicare. In addition, a higher age threshold for Medicare eligibility would reinforce the incentive to delay retirement created by increases in Social Security's FRA.

An argument against this option is that it would shift costs that are now paid by Medicare to individuals and to employers that offer health insurance to their retirees. States' spending on Medicaid would also be higher.