How Raising the Age of Eligibility for Social Security and Medicare Might Affect the Disability Insurance and Medicare Programs

Article excerpt

This article considers two hypothetical scenarios-one in which the Medicare eligibility age is raised to 67 along with the scheduled increase in the normal retirement age, and one in which eligibility for both programs is raised to age 70. It then projects the effects that each of those changes would have on Social Security Disability Insurance participation, Medicare participation, and Medicare expenditures.

Summary

The normal age of retirement is scheduled to increase to 67 by 2022, and several proposals to increase it to age 70 are being considered. The Medicare eligibility age is not scheduled to increase under current law, but proposals to raise it in step with the retirement age were recently considered by the National Bipartisan Commission on the Future of Medicare (1999).

This article examines how raising both the normal retirement age and the Medicare eligibility age would affect Social Security Disability Insurance (DI) eligibility, Medicare eligibility, and Medicare expenditures under two hypothetical policy scenarios. The first (the 2022 age-67 scenario) assumes that the eligibility age is raised to 67 by 2022, in step with the scheduled increase in the normal retirement age. The second (the 2040 age-70 scenario) assumes that the eligibility ages are increased to 70 by 2040.

The findings are based on a summary of two reports. The earlier one (Wittenburg and others 1999) describes a series of microsimulation models developed from data in the Survey of Income and Program Participation (SIPP) and the Medicare Current Beneficiary Survey (MCBS). The base simulations in that report assume that the normal retirement and Medicare eligibility ages had already been increased in 1993, when the SIPP and MCBS respondents were observed. In the later report (Wittenburg, Stapleton, and Scrivner 2000), adjustment factors were developed to reflect future increases in Medicare expenditures, population growth, and increased participation in DI. The base simulations were then adjusted by those factors, yielding a final set of annual projections under the two policy scenarios.

The hypothetical policy scenarios illustrate that the major cost reductions from jointly raising the Medicare eligibility age and the normal age of retirement would not be realized until after 2020, when the increases are fully phased in and a large portion of baby boomers have reached age 65. Although the projections provide important cost estimates, the equity and efficiency of those policies must be studied before the desirability of any specific proposal can be evaluated fully.

Introduction

The normal retirement age will be raised to 67 by 2022, and several proposals have suggested raising it to age 70. The Medicare eligibility age is not scheduled to increase, but proposals to raise it in step with the retirement age were recently considered by the National Bipartisan Commission on the Future of Medicare (1999).

Raising the normal retirement and Medicare eligibility ages would have significant effects on Social Security beneficiaries, people eligible for Medicare, and employment. The number of people who receive full Social Security benefits and who are covered by Medicare would drop; however, some beneficiaries would retain both Social Security benefits and Medicare eligibility because they qualify for Social Security Disability Insurance (DI) or, in a small number of cases, because they have end-stage renal disease (ESRD).1 Other people could turn to early-retirement Social Security benefits (or private pension benefits) and remain ineligible for Medicare until later. Still others might turn to other government programs such as Supplemental Security Income and Medicaid. Finally, some might stay in the labor market longer than they would have under the current policy.

This article describes how raising both the normal retirement age and the Medicare eligibility age would affect DI eligibility, Medicare eligibility, and Medicare expenditures under two hypothetical policy scenarios. …