Why Insurers Are Wary Of Raising The Medicare Age

The possibility that Democratic and Republican leaders will agree to slowly increase the Medicare eligibility age to 67 is creating strange bedfellows: liberals — both in and out of Congress — and the health insurance industry.

A well-placed industry source tells TPM insurers haven’t taken a public position but are skeptical of the idea, particularly those insurers that don’t cover elderly patients via Medicare Advantage, supplemental Medigap coverage or prescription drug coverage.

House Republican leaders want to avoid the fiscal cliff with a proposal that would gradually raise the Medicare eligibility age to 67. Democrats are reluctant to cut benefits, but President Obama was willing to accept the policy last year in failed negotiations with House Speaker John Boehner, and top Democrats have left the door open to including that measure in a large deficit reduction deal.

It may seem counter-intuitive: why would an industry threatened by government insurance not want it to shrink?The reason: hiking the Medicare eligibility age would throw seniors aged 65 and 66 off Medicare and into the private market, forcing insurers, who will soon be required to cover all consumers regardless of health status, to care for a sicker, more expensive crop of patients.

“The risk pool issue is important,” the insurance industry source said. “[I]f you add more older and sicker people to the pool, that’s definitely going to have an impact on premiums.”

The policy would save the federal government $113 billion over a decade, according to the Congressional Budget Office. But it achieves that by raising the cost of private insurance: the Kaiser Family Foundation projected that a Medicare age of 67 would raise costs for under-65 patients by an average of $141 in 2014. (In practice it would be phased in.)

Starting in 2014, the Affordable Care Act will forbid insurers from turning people away or charging them different prices on the basis of age or health status. So for the first time in about half a century, they’d be chiefly responsible for patients aged 65 and 66. The specter of rising costs worries insurers, who see the ongoing spiral as an existential threat to their industry.

The age hike would have other ripple effects. Businesses that provide insurance would have to pay for two more years of coverage for elderly employees when their medical expenses tend to be highest. The higher overall costs would be borne by individuals who purchase insurance on the exchanges as well as employers who provide it.

In short, raising the Medicare age would save the government money by shifting costs to the less efficient private market — that is, businesses and consumers who buy coverage and the insurers who would have to provide it. And they won’t necessarily take that reform lying down.