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Why living longer should not lead to retirement benefit cuts

[February 23, 2017] By Mark Miller

CHICAGO (Reuters) - When you hear a politician start a sentence with the phrase "We’re all living longer," grab your wallet. You are about to be told that Social Security or Medicare benefits should be cut because of America’s rising longevity.

The argument is not only specious, but hazardous to your health. That much is clear from a new report analyzing the impact of raising the Medicare eligibility age from 65 to 67, a favorite idea of U.S. House Speaker Paul Ryan and other Republicans itching to push Medicare reform in currently chaotic Washington.

The report measures possible impact on patients if Medicare’s eligibility age is raised to 67 in 2019. The findings are grim: soaring rates of uninsured people age 66 and 67, worsened health outcomes and rising use of expensive emergency medical services.

A higher eligibility age, if implemented, would almost certainly not be phased in as soon as 2019. Proposals usually boost the age gradually over 10 years. But the study fast-forwards the age to 67 in order to illustrate the endgame.

Researchers engaged by the nonprofit advocacy group National Committee to Preserve Social Security and Medicare Foundation found that the uninsured rate in the 65-66 age band would jump from nearly zero today to 18.7 percent - even if the Affordable Care Act (ACA) remains in place and the law’s Medicaid coverage were expanded to this age group.

If the ACA were repealed, the uninsured rate would soar to 37 percent. And that is with a Medicare age of 67; the conservative Heritage Foundation, for example, has proposed raising it to at least 68 over 10 years, with further indexing for life expectancy.

You will often hear proponents argue for this policy by citing soaring longevity rates in the United States. But the data can mislead. At the start of the 20th century, average life expectancy was 46 years for men and 48 years for women; now, it is 76 for men, and 81 for women, according to Brookings Institution research. But that measures longevity from birth, and fails to factor in sharp declines in infant mortality.

For retirement policy, the more relevant figure is life expectancy from age 65. Here, too, recent numbers are impressive: expected longevity for men and women from age 65 has risen more than 10 percent since 2000, according to the Society of Actuaries; men who reach age 65 can be expected to live to an average age of 86.6, and women to 88.8.

The longevity argument in favor of a higher Medicare age also implies that everyone is living longer. But the gains are not evenly distributed. Higher-income people tend to live longer; geography and race also can be strong predictors of longevity.

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That means some would be forced to wait longer to enroll in Medicare but enjoy fewer net years of coverage. Some people would work longer to stay on employer-provided health plans, but that is not always possible, especially for lower-income workers with physically demanding jobs.

One of Medicare’s enduring successes since the program’s 1965 enactment is that it covers nearly everyone over age 65. Raising the age to 67 would force the newly uninsured either to keep working, try to get covered through Medicaid or simply go uninsured.

ERODING PROGRESS

Even if the ACA remains intact and Medicaid coverage is extended to age 67 - uninsured rates would jump, the report finds, especially among people with incomes too high to qualify for Medicaid, or who live in states that have not expanded Medicaid coverage under the ACA.

“Others could obtain insurance through their employers or would buy policies on the private exchanges, if they can afford it,” said Peter Arno, director of Health Policy Research at the political economy research institute at the University of Massachusetts-Amherst and author of the report.

But here is the irony: cutting back Medicare may erode the progress we have made on longevity. “These are people who are going to experience health problems, but many are likely to forego the medical care they need,” Arno said. "It would lead to poorer health outcomes and well-being.”

It also would force people to rely on more expensive care in emergency rooms and more frequent hospital admissions - just the type of higher healthcare expense we need to avoid if the country wants to rein in overall healthcare spending.

So the real challenges are demographics and rising healthcare utilization, not Medicare. The aging boomer generation will swell Medicare enrollment from 57 million last year to nearly 90 million by 2040, according to the program’s trustees. Spending will rise along with that, to 5.6 percent of gross domestic product, up from 3.6 percent in 2015.

But Medicare spending on healthcare is not out of control. Per-enrollee outlays rose at an average annual rate of 5.5 percent, somewhat slower than the 6.3 percent average annual growth rate in private insurance spending per enrollee between 1989 and 2014. In addition, cost containment measures within the ACA improved the outlook substantially, pushing the insolvency date out by 11 years.

Let us deal with that through sensible Medicare reforms - gradual increases in the payroll taxes and further efforts to control healthcare costs.

(Editing by Matthew Lewis)

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