Raising Medicare Eligibility a First Step toward Deficit Reduction

December 12, 2012

The nation's fiscal problems are mainly the result of the rapid growth in spending on entitlement programs, says James Capretta, a visiting fellow at the American Enterprise Institute.

  • Over the next 20 years, spending on the major entitlement programs (including the new spending from the 2010 health care law) is projected to continue to rise very rapidly, reaching 15.1 percent of gross domestic product (GDP) in 2030 under plausible assumptions used by the Congressional Budget Office (CBO).
  • The historical rate of tax collection is 18.5 percent of GDP.
  • Even assuming that were to rise, there's no prospect of raising taxes high enough or fast enough to cover the coming entitlement spending explosion.

So the country has little choice but to pursue, and soon, serious entitlement reform to lower future spending obligations.

The best idea is to bring the cost discipline of a functioning health care marketplace to Medicare. Under this model, beneficiaries would choose from among competing health plan offerings.

But pursuing more competition in Medicare does not preclude adopting other reforms too. Among the ideas now being discussed in budget talks between congressional leaders and the president is a rise in the Medicare eligibility age. Social Security's normal retirement age is already moving up from age 65 to age 67 over about a two-decade phase-in period, but Medicare's eligibility remains at age 65 (where it has been since the program was enacted in 1965).

  • Raising the Medicare eligibility age would reduce spending by $124 billion over the next decade, according to the CBO.
  • More importantly, by 2035, Medicare spending would be 7 percent below what would occur otherwise.
  • Over the long run, a 7 percent reduction in Medicare spending would be enough to eliminate about 10 percent to 15 percent of Medicare's long-term unfunded liabilities.

Source: James Capretta, "Raising Medicare Eligibility a First Step toward Deficit Reduction," U.S. News & World Report, December 6, 2012.

 

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