Medicare’s Old Age Problem Is New Again

Medicare isn’t expected to live long enough to qualify for Medicare.

The most recent CMS trustees annual report forecast that Medicare will run out of money in 2029 — or one year shy of the program’s 65th birthday.

Of course, this isn’t news. Dire predictions about Medicare’s fiscal health are nearly as old as the program. The trustees warned in 1970 that Medicare would expire in 1972, just seven years after program launch, and have since offered 25 discrete projections of its insolvency date.

So every few years, Congress enacts legislative changes to adjust the program’s spending and slow costs.  The 2010 health reform law extended projections of solvency by 12 years — the biggest one-year jump on record.

But there’s a yet-untested tactic that could buy Medicare more time: Add some years to the eligibility threshold.

As Program Ages, Plan To Age It Up

When Medicare was enacted, the average 65-year-old in the U.S. could expect to live another 15 years. Today? That 65-year-old will look forward to about 19 more years of life and Medicare coverage.

Many policy analysts have called for readjusting Medicare eligibility to align with changes in life expectancy and productivity. The nation’s retirement age already is being steadily raised from 65 to 67.

“There is simply no good reason 21st century workers should operate under obsolete 1930s era expectations and 1970s rules,” according to conservative commenter Michelle Malkin.

GOP leaders have embraced the idea, as part of major legislation now wending its way through Congress. House Republicans this month passed a plan by Budget Committee Chair Paul Ryan (R-Wis.) that would boost the Medicare eligibility age to 67, among much more dramatic reforms to the program. An even more conservative plan by the House Republican Study Group, which did not pass the chamber, also proposed hiking the Medicare age by two years.

Will This Stick?

Like so many health reforms, this one isn’t new.

Federal health officials considered raising the Medicare eligibility age all the way back in 1984. Under President Clinton, Senate Republicans passed a 1997 budget proposal that hiked the Medicare eligibility age to 67. (The provision was dropped in conference committee.)

But even if the House budget fails — as expected — could a 67-and-up Medicare stick this go-around?

Writing in Slate, Jacob Weisberg says that Ryan’s plan and resulting debate have shifted the policy landscape. “For the moment, both sides are taking more seriously the fundamental questions of what government should do and how we should pay for it,” Weisberg argues.

The federal health reform law also may backstop the effort. The overhaul’s planned health care exchanges “will allow seniors to purchase health care privately, so there is no longer the need for Medicare to subsidize them so early on,” says the New America Foundation’s Maya MacGuineas.

According to MacGuineas, raising the eligibility threshold “is a no-brainer.”

Passing Costs Along

But many warn it’s not so easy.

A new Kaiser Family Foundation report found that raising Medicare’s eligibility age from 65 to 67 would indeed save the federal government $7.6 billion in 2014 — but it also would increase costs for elderly U.S. residents and employers.

According to the Kaiser report, most 65- and 66-year-olds would pay an average of $2,400 more for health care in 2014 than they would as Medicare beneficiaries. Employer costs would rise by an estimated $4.5 billion in 2014 because employer plans would become the primary provider of health benefits for the “young elderly,” the study found.

Meanwhile, those still eligible for Medicare would see premium increases of about 3% because of a higher concentration of older and sicker beneficiaries. Writing on Think Progress, Igor Volsky cites a recent study that found when the chronically ill young elderly gained health coverage through Medicare, “these uninsured Americans spent 50% more than previously insured Medicare beneficiaries who also had chronic disease.”

The New Republic‘s Jonathan Cohn also cautions that in a “best case scenario,” about 20% of these young elderly would become uninsured or underinsured, citing a 2003 Health Affairs report.

Public Resistance to Change — Any Change

The deciding factor in whether Medicare changes move forward won’t be the policy community, but rather the public’s reception to the proposal. And while many Americans say they’re open to cutting federal spending, all evidence suggests that any proposal to alter Medicare remains a non-starter.

For the third year in a row, seniors are shouting down lawmakers over potential Medicare changes — this time at Republican town halls — and House Speaker John Boehner (R-Ohio) is backing away from the GOP’s plan.

Writing on the Incidental Economist, Don Taylor, Jr., notes that a recent University of Maryland poll found that U.S. residents were lukewarm on all options to reform Medicare, but especially reluctant to increase the eligibility threshold. About 40% of respondents said changing the Medicare eligibility age to 68 was “not tolerable,” and less than one-third were willing to raise it to 70 by 2048.

The Other Debate: Medicare Should Go Younger

Of course, some argue this debate goes the wrong direction: That the way to fix Medicare is lowering the eligibility threshold, not raising it.

In December 2009, Democrats floated a plan to expand Medicare coverage to some individuals ages 55 to 64. The argument: Getting millions of older U.S. residents who lacked health coverage into Medicare would let the government better manage their conditions and prevent a surge in federal costs when these folks turned 65.

The proposal rapidly gained traction and had conditional approval from President Obama, before being buried in criticism and abandoned amid the complicated endgame to turn reform legislation into law.

Others go even further, arguing that proposals to make “Medicare for all” are the answer.

According to former Labor Secretary Robert Reich, Medicare should be expanded to “cover the entire population” because the program’s low administrative costs and high bargaining power would help depress spending on health care and help curb the deficit.

“Medicare isn’t the problem. It’s the solution,” Reich concludes.

Stay tuned to California Healthline to track the next steps in Medicare’s evolution. Meanwhile, here’s what else is making news around the nation.

On the Hill

  • Last week, Republicans on the House Energy and Commerce Subcommittee on Oversight and Investigations sent a letter to CMS requesting regular updates on two key provisions in the federal health reform law. The letter — from Subcommittee Chair Cliff Stearns (R-Fla.) to Steve Larsen, director and administrator of CMS’ Office for Consumer Information and Insurance Oversight — asked for updates on the overhaul’s high-risk pool and Early Retiree Reinsurance Program, noting that the high-risk pool program has fallen short of enrollment projections, while the early-retiree program has drawn more participants than it can handle financially (McCarthy, National Journal, 4/21).
  • A provision in the federal health reform law that would expand quality bonus payments to lower-scoring insurers in the Medicare Advantage program has drawn skepticism from two leading Republicans in Congress. In a joint letter to HHS Secretary Kathleen Sebelius, Senate Finance Committee ranking member Orrin Hatch (R-Utah) and House Ways and Means Committee Chair Dave Camp (R-Mich.) questioned whether the administration’s support for Medicare Advantage bonuses could represent “a thinly veiled use of taxpayer dollars for political purposes” (Alonso-Zaldivar, AP/San Francisco Chronicle, 4/19).

Rolling Out the Reform Law

  • A proposed rule from CMS would increase Medicare reimbursement rates for inpatient rehabilitation facilities by 1.5% in fiscal year 2012. The increased rates would apply to more than 1,200 facilities and would provide an estimated $120 million in additional payments. The proposed rule also seeks to establish a new quality reporting system authorized by the federal health reform law. According to CMS Administrator Donald Berwick, the quality reporting measures aim to “improve patient safety, prevent patients from picking up new illnesses during a hospitalization and provide well-coordinated person- and family-centered care” (Manos, Healthcare Finance News, 4/25).
  • Rep. Gabrielle Giffords’ (D-Ariz.) staff members have launched a campaign to ensure that the federal health reform law enables people with traumatic brain injuries to receive the same high standard of care that Giffords has been receiving. Earlier this month, Pia Carusone — Giffords’ chief of staff — sent a letter to HHS Secretary Kathleen Sebelius calling for a minimum package of “essential benefits” to be included in new insurance plans for individuals and small businesses beginning in 2014. Carusone also discussed the disparity in the “intensity, sophistication and duration” of rehabilitative care that insurance policies currently cover for about 1.7 million people who suffer from traumatic brain injuries (Aizenman, Washington Post, 4/21).

Eye on the Industry

  • Some health care groups are spending less on lobbying than they did a year ago at the height of the health reform debate, according to recently filed disclosure records. For example, the American Medical Association spent $4.25 million in the first quarter of 2010, compared with $6.15 million in the first quarter of last year. The change is less pronounced among health insurers. America’s Health Insurance Plans spent $2.33 million in this year’s first quarter, compared with the $2.7 million it spent in the same period last year. The BlueCross BlueShield Association reported spending $1.7 million in Q1, slightly less than the $1.8 million it spent during the same quarter last year (Pecquet, “Healthwatch,” The Hill, 4/21).
  • Hospitals might have to relinquish some control to physicians to convince them to join accountable care organizations or other integrated care models under the federal health reform law, according to a study released last week by PricewaterhouseCoopers’ Health Research Institute. Between 93% and 97% of physicians surveyed said that doctors should serve as hospital executives, on boards of directors or in other leadership positions if they began working with hospitals. In addition, more than 60% of physicians said they would accept compensation based on performance and quality metrics, such as productivity, patient satisfaction and cost of care (Jackson, Fierce Healthcare, 4/20).
  • Two-thirds of employers who responded to a recent survey by Deloitte said that although they expect to spend more to provide employee health benefits, they are adopting a “wait and see” approach before making changes to their benefit programs. The survey also found that 85% of respondents expect benefit costs per employee to increase as a result of the federal health reform law. In addition, respondents listed the top five health care priorities for talent and benefits management in 2011, which included the ability to adjust to and comply with the overhaul’s current and future provisions (Bouchard, Healthcare Finance News, 4/21).

In the States

  • Governors across the nation are seeking greater flexibility from the federal government to cut Medicaid eligibility and benefits, as the program’s costs continue to increase and states face budget deficits. The new federal health reform law restricts states’ ability to cut current benefit levels, meaning that states such as Maine that expanded Medicaid coverage during stronger economic conditions must maintain those expansions despite budget problems. Maine Gov. Paul LePage (R) said, “It’s unbelievably unsustainable,” adding, “We have to continue to be generous when we’re broke and that’s where the problem is” (Murray, Wall Street Journal, 4/23).
  • Last week, Idaho Gov. C.L. Otter (R) issued an executive order prohibiting the state from implementing the federal health reform law, despite vetoing a bill (HB 298) that would have nullified the overhaul in the state. According to Otter, the bill went too far in blocking the reform law. He said, “The intent of the bill was to stop” the overhaul; however, it “basically said that you couldn’t plan anything that even looked like ObamaCare.” Otter said he vetoed the bill and then issued the executive order to maintain the state’s flexibility to implement health reforms it deems necessary (CNN, 4/21).
  • Colorado Gov. John Hickenlooper (D) is expected to sign a bill (SB 128) passed by the state Legislature that would require all insurers in the state that provide individual adult health insurance policies to also offer individual policies for children. According to the Denver Business Journal, SB 128 would “fix an unintended consequence” of the federal health reform law. The bill also established two one-month open enrollment periods annually (Sealover, Denver Business Journal, 4/20).
  • Michigan health officials recently announced two new health plan options in the state’s high-risk insurance pool, which has failed to draw interest from residents. The high-risk pool, which was established under the federal health reform law, is designed to provide coverage to uninsured individuals with pre-existing conditions until 2014, when private insurers are required to accept all applicants. The new options, which are scheduled to be available on May 1, would have lower premiums but higher deductibles. The current coverage option has a $1,000 deductible, while deductibles in the two new plans have been set at $2,500 and $3,500 (Anstett, Detroit Free Press, 4/18).

In the Courts

  • Last week, U.S. District Court Judge Freda Wolfson dismissed a New Jersey lawsuit challenging the constitutionality of the federal health reform law on jurisdictional grounds. In her decision, Wolfson said the lawsuit — filed by two state residents — had an “absence of any facts about the effect of these harms on plaintiffs as individuals.” Wolfson also rejected the lawsuit’s challenge against the constitutionality of the individual mandate, which requires most U.S. residents to purchase health insurance by 2014 or pay a penalty. She concluded that the plaintiffs did not have adequate standing to challenge the mandate because they did not demonstrate that it would cause them “a personal and particularized injury” after it is implemented (Daly, Modern Healthcare, 4/21).

Categories: Medicare, Road to Reform, The Health Law