Ten Miles Square


November 20, 2012 12:05 PM Medicare, Exchanges, and Work Incentives

By Austin Frakt

One of the arguments for increasing the age of eligibility for Medicare from 65 to, say, 67 is to increase the incentive to work. Putting aside the fact that many at that age may not be able to work, the logic here is that lifespans have lengthened (for some) and we could use more tax revenue and economic activity, so let’s put more people to work. (One has to ignore the fact that jobs vacated by older individuals are filled by younger ones. So, retirement doesn’t necessarily reduce the work force.)

The work incentive mechanism is obvious in today’s world since, absent Medicare, the only reliable source of health insurance coverage for 65 and 66 year olds is employer-sponsored plans. By that age, the vast majority of people will have some kind of pre-existing condition that will make obtaining affordable, non-group coverage challenging. So, if Medicare goes away, many people will try harder to keep working.

But the work incentive argument loses its punch in the era of subsidized, exchange-based coverage. One can retire and get health insurance that’s guaranteed to be affordable. Is there still a work incentive effect of increasing the Medicare age in this case? Maybe, but it is harder to demonstrate. One needs to examine the out-of-pocket cost of exchange coverage versus Medicare. Both have income-varying premiums, net subsidies. There are other complicating factors, but I won’t belabor the point, which is that you just can’t assert raising the age of Medicare eligibility increases work incentives. It’s just not obvious in this case.

Who, if anyone, has done a careful calculation to show there is or is not a work incentive from increasing the Medicare age in the context of the ACA? To what extent does the work incentive, if any, vary by income?

By the way, a policy option I’ve seen nobody discuss is allowing 65-66 year olds access to exchanges and Medicare but at a consistent subsidy schedule across both regimes. Do you know what that is? It’s Medicare premium support with a public option, but only for a narrow age band, the one, in fact, for which it makes the most sense (on the argument that older beneficiaries are more likely to have difficulty making plan choices).

I can see why both the left and right might simultaneously like and hate aspects of this idea. That might make it the perfect compromise test of premium support and the public option. But, you have to be on board with both the ACA and Medicare premium support to go along. I can almost feel people squirming.

[Cross-posted at The Incidental Economist]

Austin Frakt is a health economist and an assistant professor at Boston University's School of Medicine and School of Public Health. He blogs at The Incidental Economist.


  • MelanieN on November 20, 2012 7:51 PM:

    You said "One can retire and get health insurance thatís guaranteed to be affordable." Sez who? Private insurance for people in their 60s is NOT affordable, and nothing in Obamacare is going to make it so. Most of us seniors heave a huge sigh of relief when we turn 65 and can stop paying $1000+ a month for health insurance (not to mention that Medicare is a vastly better insurance plan for its beneficiaries than private). A more sensible approach to affordability would be to keep the age of Medicare as it is, and impose steeper premiums for Medicare Part B on those (like me) who can afford it. (There is already a bit of a boost on the premium for higher-income folks, but it isn't much.) Maybe we should even consider imposing a charge to higher-income seniors for Medicare Part A, which is currently paid entirely by a payroll tax.

  • waddanut on November 21, 2012 8:41 PM:

    Raising the retirement age is not the answer.

    Sure, you have the white collar types that work behind a desk. I'm sure that physically most of them can work to 70 or 75. But, the average blue collar worker like the people that do physical work, (construction workers, mill workers, even the people who climb poles restoring your power when a storm knocks it out)their bodies wear out quicker.

    Who will hire a 64 year old roofer with bad knees, shoulders and back? How good is the possibility of that worker getting laid off because he no longer do his job?

    As a person ages, there is more illnesses that needs to be cared for. Try to by affordable insurance when you arr 66 and have early onset dementia.

  • Maine Insurance on November 27, 2012 5:50 AM:

    Medicare health care exchange is very good program people get more benefits Virginia implemented it let us see how it works.