Castrated servants of Royalty

“As I have thought about it…under the Affordable Health Care Act we provide subsidies for people who have really chronic illnesses and people who have limited incomes so they can afford health care insurance in the private sector,” Bowles told the panel during an exchange with Sen. John Kerry (D-MA). “And that didn’t exist before the Affordable Health Care Act. That means that people 65, 66, 67 will still be able to get health care insurance. So as I think about it I could support raising the health care age for Medicare since we have other coverage available under the Affordable Health Care Act.”

In private budget negotiations earlier this year with House Speaker John Boehner (R-OH), President Obama entertained the same idea — a slow increase in the Medicare retirement age — provided Boehner find votes for over $1 trillion in new revenues. The discussions quickly fell apart.

The proposal infuriates progressives, and other defenders of single-payer Medicare, who note that the proposal is regressive — hitting elderly minorities and poor people who have lower life expectancies hardest — and shifts costs on to seniors, states, employers, and other federal programs. And it doesn’t save much money.

The principal study of the effects of raising the Medicare eligibility age, by the Kaiser Family Foundation, estimates that its increased state and private-sector costs would be twice as large as the net federal savings. If the proposal were fully in effect in 2014, Kaiser estimates, it would generate $5.7 billion in net federal savings but $11.4 billion in higher health care costs to individuals, employers, and states.

The fundamental purpose of deficit reduction is to strengthen the economy over the long term. The relentless rise in health care costs is the key driver of projected long-term deficits that policy­makers must address. But reducing federal health care costs by raising state and private-sector health care costs even more makes little sense, as it only increases the burden that health care costs place on the economy as a whole. The goal should be to slow the growth of health care costs system-wide, while extending coverage to all Americans. This proposal does just the opposite on both fronts — raising costs system-wide and increasing the ranks of the uninsured.

The Kaiser report found that if policymakers raised the Medicare eligibility age to 67:

65- and 66-year-olds would face higher out-of-pocket health care costs, on average. Two-thirds of this group — 3.3 million people — would face an average of $2,200 more each year in premiums and cost-sharing charges.

State Medicaid costs would rise as some of those who lost Medicare coverage (those with the lowest incomes) would obtain coverage through Medicaid instead.

Some people contend that policymakers should raise Medicare's eligibility age to 67 to match the scheduled increase in Social Security's "full retirement age" to 67. This argument may seem plausible at first blush. But in reality, it reflects a misunderstanding of how Social Security works.

Most Social Security beneficiaries do not begin drawing benefits at Social Security's "full retirement age." To the contrary, about half of Social Security retirement beneficiaries begin to draw benefits at age 62, and two-thirds begin to draw benefits before 65.a

If a beneficiary does not claim benefits at 62, his or her monthly benefit is increased on an actuarial basis for each month that the beneficiary delays claiming, up through age 70, so that the expected lifetime value of benefits remains about the same. Indeed, Social Security's "full retirement age" (some­times called the "normal retirement age"), now 66 and scheduled to increase to 67, has become a misnomer. It is not the age at which most retired workers claim benefits, nor is it the age of claiming that produces the highest monthly benefit.

Raising the age of eligibility for Medicare thus would not better align Medicare and Social Security. The programs are not currently aligned, since there is a lag of up to three years between when most people claim Social Security and when they become eligible for Medicare. And raising the Medicare eligibility age would push the two programs further out of alignment, rather than bringing them closer together.
a Owen Haaga and Richard W. Johnson, "Social Security Claiming and the Business Cycle," paper prepared for the annual conference of the Retirement Research Consortium, August 4, 2011.

Employer costs would rise as more 65- and 66-year-olds whose employers offered coverage to their retirees received primary coverage through their employer rather than Medicare.

All Medicare beneficiaries would pay higher premiums because the removal of 65- and 66-year-olds, who are typically healthier than the overall Medicare beneficiary population, would leave the Medicare beneficiary population costlier, on average, to cover.

People under age 65 who buy coverage through the new health insurance exchanges would face higher premiums to help cover the cost of insuring the many 65- and 66-year-olds who would enter the exchanges; the 65- and 66-year-olds would be less healthy, and more costly to cover, on average, than other people who bought coverage through the exchanges.

To fall short of the $1.2 trillion minimum goal necessary to avoid automatic cuts would come as an overwhelming letdown that would likely roil the stock market as well as the political landscape.

Wall Street analysts warn of the likelihood of another credit downgrade, and pollsters warn of a backlash from independent voters.

“All of them collectively will bear the success or failure,” former Sen. Byron Dorgan (D-N.D.) said of the panel’s 12 members. “I suspect there’s a lot pressure on members of this supercommittee.”

Dorgan said finding enough in spending cuts and new revenues to avert the automatic cuts of the sequestration process would mark “a small signal for success.”

The panel’s members are confronting risk on all sides. For Senate freshmen like Pat Toomey (R-Pa.) and Rob Portman (R-Ohio), and ambitious House Democrats like Chris Van Hollen (Md.) and Xavier Becerra (Calif.), signing onto any agreement could alienate segments of their party’s base and threaten their advancement in leadership.

“There are worse things than no deal,” said Rep. Jan Schakowsky (D-Ill.), a House liberal who served on the Simpson-Bowles deficit commission and who has warned against slashing entitlement benefits. “A bad deal is worse than no deal.”

Yet in spite of warnings from liberals and conservatives, voices in the political center insist that no outcome is worse than failure.

“The consequences for failure are very significant,” Dorgan said. “If it’s failure, it exacerbates the feelings people have about the country and Congress not being able to right the ship.”

Rep. Steven LaTourette (R-Ohio) said, “I’m sure they’re all trying their hardest, but the risks to the country are pretty significant if they don’t produce something. … It will be seen as a sign we can’t get anything done.”

Speaker John Boehner (R-Ohio) has acknowledged the pressure on the members of the supercommittee. During a press conference last week, he said the panel’s assignment was “as big a task as I’ve seen since I’ve been here.”

Senate Minority Leader Mitch McConnell (R-Ky.) in September said, “Failure is not an option.”

CNN aired a graphic last week suggesting the panel’s members would be viewed as eunuchs — the castrated servants of royalty — if they could not produce an accord.