The health industry case for raising Medicare’s eligibility age

at 10:40 AM ET, 09/14/2011

In the debate over whether to raise Medicare’s eligibility age, one key player has stayed conspicuously quiet: the health care industry.

The Obama administration suggested the new age limit during deficit negotiations as a way to cut federal costs. Yet there’s been little public discussion, from the industry perspective, of what it would mean to move about 5 million seniors out of Medicare and into private programs or for them to have no coverage at all.


(Alex Wong)

I put that question to health industry sources, and several had this to say: Key health care players tentatively lean toward raising Medicare eligibility age, especially when it’s compared to other entitlement cuts that the deficit-reduction supercommittee could make. And, for some of those in the health care industry, the change could be profitable.

The Health Leadership Council, a consortium of 47 health industry leaders including Aetna, Pfizer and the Cleveland Clinic, endorsed today to raise Medicare’s eligibility age from 65 to 67, phasing in the change by two months annually. Raising Medicare's eligibility age is one proposal in a four-part package of Medicare reforms up for vote, including creating a new exchange-like marketplace and increasing the cost-sharing for seniors who earn more than $150,000. You can read the full proposal here.

The group will formally submit these recommendations to the supercommittee, as well as House and Senate leadership, later this week. “This is a policy action to address the shrinking ratio of active works to Medicare benefciaires,” Health Leadership Council president Mary Grealy. “We think a small, reasonable increase in the Medicare eligiblity age makes sense.”

There’s a pretty simple explanation for why hospitals and some insurers would favor raising the eligibility age: Hospitals receive higher payments from private insurance than they do from Medicare. The payments that hospitals receive from private insurers are 28 percent above the break-even point for providing treatment, according to a recent report from the Blue Cross Blue Shield Association. Medicare pays only 91 percent of what it costs a hospital to provide care.

“For the hospitals, if you believe that that population [seniors ages 65 and 66] will have health insurance, it makes some sense,” says Chris Jennings, president of Jennings Policy Strategies and former health policy adviser to President Bill Clinton.

Heath insurers, too, could stand to benefit if 5 million seniors in that age bracket move into the private market. A number of health reform provisions -- in particular the mandated purchase of insurance and limits on rating based on the insured’s age — would presumably push those seniors to buy health insurance rather than go uninsured.

A Kaiser Family Foundation report earlier this summer found that about 2 million seniors would enroll in the individual market, via the exchange, while another 2 million would find coverage through a current or previous employer. “It’s possible [insurers] could support increasing the Medicare eligibility age,” says Bill Hoagland, CIGNA’s vice president of public policy.

But the second, and perhaps stronger, motivation is that any revenue raised through increasing Medicare eligibility age could act as a buffer against other changes to entitlement programs. Many of the large health care associations are especially worried about cuts to provider reimbursements -- how much they’re paid for each service they provide.

“Our primary concern, looking at the supercommittee, is reimbursement,” says Greg Crist, vice president of public affairs at the American Health Care Association, which represents nonprofit nursing homes. Raising the Medicare eligibility age “hasn’t been one we’ve studied intensely, in terms of impact,” Crist says.

That could explain why the American Hospital Association is lobbying the supercommittee to raise the Medicare eligibility age from 65 to 67. As Politico reported last week, “The association is urging its nearly 5,000 members to lobby Congress to raise the Medicare eligibility age from 65 to 67.”

In a recent action alert to members, the American Hospital Association argues that “providers already face billions of dollars in Medicare and Medicaid payment cuts.” It’s in that context that the AHA mentions raising Medicare’s eligibility age as a “health care alternative for deficit reduction.”

Most observers I talked to didn’t expect to see the health industry publicly promote raising Medicare’s eligibility age — a politically fraught position. But they probably won’t fight it, and they may quietly support it.

“At this point we’re dealing with a situation where, if something raises money and it’s not raising money from me, than its not a bad thing,” says Ian Spatz, a senior adviser on the health care industry at the law firm Manatt. “If it’s something that’s not directly cutting you, that’s better.”

The pushback on the policy proposal, rather, is likely to come from other stakeholders. States, employers and seniors would all suffer if the Medicare eligibility rules were changed. It would shift about $11.4 billion in new costs to those parties while saving the federal government only $5.7 billion, according to the Center on Budget Priorities and Policy.

“This policy does nothing to control costs,” Sen. Bernie Sanders, an independent from Vermont, wrote in a memo obtained by the New York Times. “It simply shifts substantial costs from Medicare to other parts of government and to private and public employers.”

The Budget and Policy center estimates that if the Medicare eligibility age were raised, seniors under age 67 would have to spend $3.7 billion more in out-of-pocket cost. For many in the political system, that’s enough to reject the idea out of hand. But for some in the health-care system, that’s a profit waiting to be made.

 
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