When it comes to the “Grand Bargain” they’re pushing in Washington, the movie posters for The Fly said it best: Be afraid. Be very afraid.
Other people are using our lives as bargaining chips. Whether it’s the so-called Congressional “Super Committee” or the president’s push for that grandé-sized deal, they want to look “grand” while we get stuck with the “bargain.”
The Capital’s misplaced focus on austerity has led to plenty of bad ideas, but one of the worst is raising the Medicare retirement age to 67. It may be the most destructive deal to come out of Washington since the Kansas-Nebraska Act of 1854. It’s unfair, short-sighted, and will actually cost the economy more money than we’re spending today.
No Democratic president would accept an idea like that, right? Right?
Be afraid. Be very afraid.
Say it ain’t so…
Before negotiations on a debt-ceiling deal broke down, Politico reported that the president and John Boehner had agreed on “gradually increasing the eligibility age from 65 to 67 over about two decades, according to administration and Republican congressional sources.”
But that’s just one story, and it only cites two sources. Maybe those sources were wrong. Did anybody double-check? As as matter of fact, yes.
According to five separate sources (emphasis ours) with knowledge of negotiations—including both Republicans and Democrats—the president offered an increase in the eligibility age for Medicare, from 65 to 67.
Note the language: “The president offered…” The Republicans didn’t demand it. Reports say that the president offered it.
The Single Worst Idea
When Yale Professor Jacob Hacker called this proposal “the single worst idea for Medicare reform” he was being far too kind. For one thing, it’s not reform—it’s reduction. It’s not Prof. Hacker’s fault that this has become the accepted terminology, but we should stop conflating reform with reduction in our public debate.
Secondly, Prof. Hacker’s certainly right that it’s a terrible idea for Medicare. But he’s selling it short. It’s also a terrible idea for health care costs, job creation… in fact, for the entire economy. You could say it’s hit the trifecta of bad policy notions. We admire Jacob Hacker, but we’ll have to amend his comments: It qualifies as the “single worst idea” in lots of policy areas.
Again, from Politico:
Neera Tanden, chief operating officer at the Center for American Progress and a former Obama administration health reform adviser, said it’s “troubling that a progressive president would put forward that proposal.”
Readers may interpret that comment any number of ways, none of which augur well for future policy decisions or the 2012 election. And now Washington’s buzzing with well-sourced backchannel talk that the president will include this change in his big post-Labor Day “jobs” announcement.
Let us count the ways
How bad is this idea? We only have a few hundred words to make our case and about 24 hours to do it, so we’d have to warp the space/time continuum to include all the reasons why it’s so misguided. Since we don’t have the budget for that, we’ll just hit eight of the high points for now:
1. It would save money at the Federal level—but it would cost more everywhere else.
A Kaiser Foundation study concluded that “raising Medicare’s eligibility to 67 in 2014 would generate an estimated $5.7 billion in net savings to the federal government, but also result in an estimated net increase of $3.7 billion in out-of-pocket costs for 65-and 66-year-olds, and $4.5 billion in employer retiree health-care costs.”
So it would save $5.7 billion from the Federal budget in the first year, but it would cost everyone else $8.2 billion. That means it would increase health care costs by $2.5 billion. (We do the math so you don’t have to.) Who would benefit from a lower Federal deficit? High earners who want to cut spending so they’re not pressured to pay more taxes. Who would get hurt? Older Americans, employers, and anybody on an employee benefit plan. That’s government of the rich, for the rich, and by the rich.
2. It’s brutal on seniors. In fact, it’s like a 20 percent cut in Social Security benefits.
The Kaiser Foundation says that “Among the estimated 5 million affected 65-and 66-year-olds, about two in three would pay an average of $2,200 more for their health care in 2014 than they would have paid if covered under Medicare.”
The average Social Security retireee receives about $11,000 per year in benefits. Making this change is like reducing Social Security benefits 20 percent for 3.3 million people.
The Kaiser study adds: “Nearly one in three, however, are expected to have lower out-of-pocket spending, mainly due to the health reform law’s coverage expansions through Medicaid and the premium tax credits available to low-and moderate-income Americans.”
Unfortunately, that assumes that Medicaid will survive the deep cuts being planned for that program, and that devastated state budgets will be able to assume the extra costs. It also assumes that last year’s health bill will survive the attempts to gut it—attempts which now unfortunately include this proposal.
3. It would lead to benefit cuts and create more job discrimination against older workers.
The Kaiser study cites the problems that employee retirement health benefits are having with costs. As a result, these programs are being slashed already and this change would make the situation much worse. It would also increase costs on health plans for active workers, which would lead to even more benefit cuts for working Americans.
And it makes it almost inevitable that job discrimination against older workers will get worse. Employers try to weed them out of the workforce just to keep their health care costs down.
4. Its impact is made even worse by the president’s demand that a “health excise tax” on higher-cost plans be included in last year’s health bill.
The president reneged on a campaign pledge to oppose taxes on higher-cost health plans, a McCain idea he mocked at the time. He had it right back then. “Luxury health benefits” (which are very rare for non-executives in real life) have very little effect on health plan costs. The age, sex, and location of employees are the real cost drivers. Then, in one of his few direct interventions in the legislative process for the health bill, he demanded that this tax be included in the final product.
Raising the retirement age would make this tax even costlier, multiplying the unfairness of the original health excise tax.
5. The number of uninsured Americans will go up.
This change undercuts one of the stated goals of last year’s health bill: reducing the number of uninsured Americans. Private health insurers are allowed to charge much higher premiums to older Americans, but the tax penalty for going without insurance is the same.
That means many older Americans are likely to pay the penalty, since they won’t be able to afford the massive premiums they’ll face—even after they receive any government subsidies.
6. Health system costs will increase, too.
We already pay far more than any other industrialized nation for health care. Why? Because too much of our health system is run by private insurers who take a profit for themselves and have no real incentive to control costs or improve quality.
Most of our best cost and quality initiatives come from Medicare and Medicaid. The less medical care they manage, the more overall costs are likely to rise.
7. It doesn’t address the real cost problem—chronic health conditions.
Data analysis shows that our real cost problem comes from people with intensive and frequently chronic health conditions. Five percent of the population accounts for nearly half of all health care costs, while the lowest-cost 50 percent only make up 3 percent of the cost. As you’d expect, older people are much more likely to be in the high-cost group.
Five health conditions account for a great deal of this cost: heart problems, diabetes, cancer, mental disorders, and pulmonary conditions. The best way for Medicare to reduce these costs is by identifying these conditions as quickly as possible and managing them aggressively.
Raising the retirement age will make it more difficult to do that, not less. Even worse, it’s another example of our leaders shifting cost onto financially-strapped private citizens rather than addressing the real problem.
8. It’s a step in the wrong direction.
We should be expanding Medicare, not downsizing it. Last year the Senate gave some consideration to making Medicare available to anyone over the age of 55, which is an excellent idea. This bill moves us in the other direction, placing the higher-cost needs of 66 and 67-year-old Americans in the hands of underskilled and overly profit-driven private insurers.
Richard Eskow, an Affiliate Scholar of the IEET and Senior Fellow with the Campaign for America's Future, is CEO of Health Knowledge Systems (HKS) in Los Angeles.
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