Raise the Age of Eligibility for Medicare to 67

Under current law, the usual age of eligibility to receive Medicare benefits is 65, although younger people may enroll after they have been eligible for Social Security disability benefits for two years. The average period 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 18.1 years for men and 20.6 years for women. That trend, which results in higher program costs, will almost certainly continue.

This option would raise the age of eligibility for Medicare by two months each year, starting in 2020 (people born in 1955 will turn 65 that year), until it reaches 67 for people born in 1966 (who would become eligible for Medicare benefits in 2033). It would remain at 67 thereafter. Social Security’s full retirement age, or FRA (the age at which workers become eligible for full retirement benefits), 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; they will turn 67 in 2027. (People can claim reduced retirement benefits—but not Medicare benefits—starting at age 62, which is the most common age to do so.) Under this option, Medicare’s age of eligibility would be below the FRA until 2033.

Implementing this option would reduce federal budget deficits between 2020 and 2026 by $18 billion, according to estimates by the Congressional Budget Office and the staff of the Joint Committee on Taxation (JCT). That figure results from a projection of a $22 billion decrease in outlays and a $4 billion decrease in revenues over that period. The outlay reduction would stem from decreases in Medicare and Social Security spending, partially offset by increases in outlays for Medicaid and for federal subsidies for insurance purchased through the marketplaces established under the Affordable Care Act.

This option would lower Medicare outlays by reducing the number of people enrolled at any given time from that under current law. In calendar year 2020, when this option would take effect, about 3.4 million people will become eligible for Medicare coverage on the basis of their age, CBO estimates. Under this option, that group would see its benefits delayed by two months. By calendar year 2026, the benefits of 3.7 million people would be delayed by 14 months. Total spending on Medicare as a result would be $55 billion lower between 2020 and 2026 than under current law.

CBO anticipates that most people who become eligible for Medicare after age 65 under this option would continue their existing coverage or switch to another form of coverage between age 65 and the new eligibility age. CBO also expects that the number of people without health insurance would increase slightly. CBO estimates that in 2026, about 45 percent of the 3.7 million people affected by this option would obtain insurance from their own or a spouse’s employer or former employer, about 25 percent would purchase insurance through the nongroup market (insurance purchased directly either in the health insurance marketplaces or from insurers outside the marketplaces), about 25 percent would receive coverage through Medicaid, and about 5 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 Medicare’s current eligibility age. The figures were then adjusted to account for changes in sources of health insurance and in participation in the labor force as people age.

The option also would reduce outlays for Social Security retirement benefits by an estimated $5 billion over the 2020–2026 period because raising the eligibility age for Medicare would induce some people to delay claiming retirement benefits.

In CBO’s estimation, the reduction in Social Security spending would be fairly small because raising Medicare’s eligibility age 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 such benefits when they reach the age of eligibility for Medicare.

CBO also expects future decisions about claiming retirement benefits to be less linked to Medicare’s eligibility age than has historically been the case because of greater access to health insurance through Medicaid and through the nongroup market. Increased access through Medicaid stems from a provision of the Affordable Care Act 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 by 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. Because the federal government subsidizes those sources of insurance, the savings for Medicare and Social Security under the option would be substantially offset by increases in federal spending and by decreases in revenues.

Under this option, federal outlays for Medicaid would increase for two groups of people between the age of 65 and the new Medicare eligibility age: dual-eligible beneficiaries (Medicare enrollees who also are eligible for full benefits under Medicaid) and enrollees who would be Medicaid beneficiaries before turning 65 but who, under current law, would lose that eligibility once they qualified for Medicare at age 65. For this option, CBO assumed that the age limit for Medicaid would increase in tandem with Medicare’s eligibility age. Hence, this option would cause Medicaid to remain the primary source of coverage for members of both groups until they reached the new eligibility age for Medicare. As a result, federal outlays for Medicaid between 2020 and 2026 would be $20 billion higher under this option, CBO projects.

This option 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 or newly obtain subsidized health insurance through the marketplaces when they were between age 65 and the new eligibility age for Medicare. 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 coverage through the marketplaces. CBO and JCT estimate that this option would increase outlays for subsidies for coverage through the marketplaces between 2020 and 2026 by $18 billion. (Those subsidies fall into two categories: subsidies to cover a portion of participants’ health insurance premiums and subsidies to reduce the out-of-pocket payments required under insurance policies.)

Under this option, revenues would decline 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 and payroll taxes. This option would reduce revenues between 2020 and 2026 by $4 billion, CBO and JCT estimate.

All told, CBO estimates, by 2046, spending on Medicare (net of offsetting receipts) would be about 2 percent less under this option than it would be under current law, amounting to 5.6 percent of gross domestic product rather than 5.7 percent. On the basis of its estimates for 2020 through 2026, CBO projects that roughly three-fifths of the long-term savings from Medicare under this option 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.

An argument in favor of this option is that as life expectancy increases, the increase in the eligibility age for Medicare would help the program return to focus on 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 2046, 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 into old age. Those findings suggest that raising Medicare’s age of eligibility would not diminish its ability to provide health benefits to people near the end of life.

An argument against this option 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. About 300,000 more people would be uninsured under this option in 2026, 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 eligibility age for Medicare. In addition, states’ spending on Medicaid and the federal costs of subsidies for health insurance purchased through the marketplaces would increase.

This option’s net effect 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 eligibility age for Medicare. One study showed that spending on some procedures declined when people switched coverage at age 65 from private health insurance to Medicare; the decline was driven mostly by price differences between private health insurance and Medicare.