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Does President Obama Want to Impose a Crushing Burden on Our Children?

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Sorry deficit fanatics, this one has nothing to do with the cost of the stimulus or the deficits run-up during the Obama years. We're talking real money here. We're talking about plans to raise the age of Medicare eligibility to 67.

To deficit hawks everywhere this is a great way to save the government money. Life-expectancy at age 65 is roughly 20 years. Therefore raising the age of eligibility for Medicare by two years would shave roughly 10 percent off the program's budget. (The actual saving would be somewhat less since it is cheaper to treat people when they are 65 and 66 than in their 80s or 90s.) For a program that is projected to cost more than $1 trillion a year (at 5 percent of GDP) in a decade, and even more in following decades, this would amount to real savings.

But the cost of this savings is a much higher health care bill for beneficiaries. As it is now, millions of people in their 60s struggle to hang onto jobs that provide health care insurance or do without, hoping that they can make it until 65 without a major medical problem. This proposal pushes the magic age out two more years.

And there should be no mistake; the cost of insurance for someone in his/her mid-60s is a real burden. The Congressional Budget Office (CBO) projected that the cost (in 2011 dollars) of insuring someone in the private sector at age 65 will be $15,500 a year in 2022.

This would be roughly equal to the average Social Security benefit for someone turning age 65 in that year. In other words, for the majority of workers who will have retired by age 65, the proposal to raise the age of eligibility to 67 implies that they will have to spend more than half of their income on health care.

The situation will be considerably worse for the large number of beneficiaries who have pre-existing conditions. They can expect to pay two or three times as much for their health insurance. In principle, President Obama's health care plan should prevent insurers from discriminating based on pre-existing conditions, but the smart money isn't betting on that one right now.

Many, or perhaps most, 65-year olds will qualify for Medicaid, so they may still be able to afford health care. However, the quality will almost certainly be worse, since Medicaid generally provides lower quality care.

This raises two additional issues. Instead of guaranteeing middle-class workers decent health care in their old age, we will be telling them that they will have to rely on a program that was intended to provide health care to poor people. So people who spent decades working as school teachers, firefighters, and in other middle-class occupations will need to turn to an anti-poverty program to get health care in their older years.

The other issue is even more disturbing. By switching people age 65 and 66 from Medicare to private insurance we will be hugely raising the cost of insurance for the country as a whole. Medicare is the most efficient part of the national health care system. It both saves money on administrative costs and is more effective in holding down payments to providers than private insurers.

Based on CBO's analysis of the Paul Ryan plan, my colleague David Rosnick calculated that raising the age of Medicare eligibility to 67, beginning in 2022, would increase the cost of health care to seniors by $3.9 trillion over Medicare's 75-year planning horizon. However, only $1.3 trillion of this cost would be savings to the government. The rest, almost $2.7 trillion, would be the additional cost of providing health care through the private health care system rather than Medicare. (All numbers are in 2011 dollars.)

In other words, the proposal to raise the age of Medicare eligibility to 67 is a proposal to increase health care costs to our children and grandchildren by $2.7 trillion. The idea that this cut is being presented as somehow helping our children is a sick joke that would only be taken seriously in Washington political circles.

The reality of health care costs is simple. We have two choices. We can fix our health care system and get payments to providers down to reasonable levels, as every other country in the world has done. Or, we can protect the insurers, the pharmaceutical companies, the hospitals, and the highly paid medical specialists, and tell people that they will have to do without care.

The proponents of raising the age of Medicare eligibility are clearly in the "do without care" camp. This group is a small but powerful minority. Let's see if they can buy this proposal into law.
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Dr. Dean Baker is a macroeconomist and Co-Director of the Center for Economic and Policy Research in Washington, D.C. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University. (more...)
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