The Bipartisan Path Forward's Medicare Buy-in

In an effort to bridge differences in long-term structural reforms to federal health spending, former Fiscal Commission co-chairs Senator Al Simpson and Erskine Bowles have proposed a new spin to a familiar policy. In their plan, "A Bipartisan Path Forward", Simpson and Bowles recommend raising the Medicare eligibility age, but doing so with a buy-in option with income-related premiums for those seniors affected by the change -- an idea that is generating a lot of interest recently.

Specifically, Simpson and Bowles recommend raising the Medicare age by one month per year beginning in 2017 until it reaches age 66, and then by two months per year until it reaches the Social Security normal retirement age where it would then be pegged to the Social Security age. They aim to address the main concerns of raising the eligibility age -- higher overall national health expenditures, higher costs for some seniors, increased uninsurance rates -- with a buy-in. As a result, the savings from this option are less than other proposals to simply raise the age, but would still be roughly $35 billion from 2017 to 2023 and much greater in subsequent decades.

Under their plan, Medicare would be available to everyone between age 65 and the new eligibility age, who could buy it at its full value for the relevant population plus a small administrative fee. For those seniors below 100 percent of poverty, the government would cover 100 percent of their costs. Seniors between 100 and 400 percent of poverty would pay income-related premiums similar to what they would be paying in the health insurance exchanges under the Affordable Care Act. And for those above 400 percent of poverty, the effective federal subsidy would taper off. As a result, their plan to raise the Medicare age would be highly progressive and would likely reduce the out-of-pocket costs for the majority of those making below 300 percent of poverty. By keeping Medicare in place for 65- and 66-year olds, it would also avoid most of the potential increase in national health expenditures from having those seniors go on private insurance.

The chart below gives you an idea of how many 65- and 66-year olds would fall into each income category.

This approach holds great potential for building consensus between lawmakers who want to address the issue of population aging in the Medicare program and those who are concerned about the impact such a change would have on low- and middle-income seniors. However, there is more than one way this policy can be implemented. We shared a few of these options in our Health Care and Revenue Savings Options report. We also discussed the Urban Institute’s proposal for a Medicare buy-in before, which is very similar to the Simpson-Bowles recommendation. In addition to their recommendation, Simpson and Bowles explain an alternative approach lawmakers could take:

Rather than requiring beneficiaries to pay 100 percent of their Medicare costs (pre-subsidy) before the new Medicare age, an alternative approach would be to allow individuals to begin benefiting from Medicare as early as age 65 with an actuarially-increased premium for their 65th and future years, which would be similar in approach to actuarial reductions for those who collect Social Security prior to the full retirement age. In this case, low-income subsidies could be offered on a sliding scale to avoid unaffordable premium increases.

With population aging projected to be a major factor in driving future federal health spending and increasing deficits, these options to raise the Medicare age put Medicare spending on a more sustainable path, ensure its future solvency, and include support for low and middle income seniors. Simpson and Bowles offer a unique approach towards achieving this goal and, together with some of their delivery system and payment reforms that seek to bend the health care cost curve, provide the type of comprehensive health care plan lawmakers should be considering.