How Lowering Medicare Eligibility Age Could Save Employers Money
Some simple math will help us to understand that if employers are not paying for health insurance, and people are able to shift from the employer plan to medicare earlier, the employer will save money, shifting the cost burden to Medicare. Medicare itself offers lower healthcare costs for individuals, as well as to hospitals, doctors, and other members of the healthcare system because Medicare operates with cost sharing measures reducing the overall cost of care and making up the difference with Federal money.
The Kaiser Family Foundation investigated the just how much employers could potentially save, and found that, “lowering the age of Medicare eligibility to 60 could reduce costs for employer health plans by as much as 15 percent if all eligible employees shifted from employer plans to Medicare. Similarly, costs for employer plans could drop by as much as 30 percent if all people age 55 and over were no longer in employer-sponsored insurance, the analysis finds, and by up to 43 percent if everyone 50 and older chose to enroll in Medicare.” (2021) The amount of cost savings would ultimately depend on how many employees switch from the employer healthcare to Medicare.
Aside from simply covering less people, the employer would save money because older adults take on a higher risk and spending profile, costing more than their younger counterparts. However, employers are not legally able to force people off company healthcare plans and onto Medicare. Often employees who pay a higher premium for employer sponsored healthcare would want to switch to Medicare for lower costs. Alternatively, if the employer health plan is providing great care, people may not want to switch. So there would be variability in the results of a lower eligibility age as it applies to employees and employers.
Employers could incentivize the switch by offering a Medicare group plan or subsidizing the group plan. The other issue for employees making the switch is the impact of coverage on dependents who would be kicked off the healthcare plan once the employee transitions to Medicare. Working through these issues will be crucial for employers to consider if the eligibility age is reduced.
The higher cost of employees 60+ on an employer plan transfers the cost not only to employers but to the other employees on the plan. This spending increase predominantly affects the livelihoods of low-income staff members. In general, people aged 60-64 have higher healthcare spending than individuals in their later sixties (65-69) although their healthcare utilization is typically higher. This means that people 60-64 cost more to an employer health plan than any other group.
Lowering the eligibility age for Medicare will also have an effect on players in the healthcare field such as hospitals, doctors, specialist, etc. With Medicare subsidizing the cost of care, doctors, hospitals, and other providers of care will receive the reduced fee for service. This transition is already beginning with a move toward value-based care.
Many wonder about the whispers of Medicare coffers running low, and if we are to switch more people to Medicare, this would significantly impact government spending. The solution is to diversify the funding sources from the Medicare Trust Fund as the sole funding source, to additional revenue sources. This would likely result in an allocation of the increased tax rate on individuals earning more than $400,000 annually and major corporations.
In summary, lowering Medicare eligibility age has the potential to reduce healthcare spending for employers and younger employees. The volume of cost saving would depend on the uptake of newly eligible individuals self-selecting to transition from their employer plan to Medicare. Employers can anticipate and incentivize “the switch” with creative solutions such as Medicare group plans or subsidized plans.
Sources:
Lowering the age of Medicare Eligibility would likely reduce health spending for employers, but raise costs for the federal government by covering more people in Medicare. (2021, April 28). Retrieved April 29, 2021, from https://www.kff.org/medicare/press-release/lowering-the-age-of-medicare-eligibility-would-likely-reduce-health-spending-for-employers-but-raise-costs-for-the-federal-government-by-covering-more-people-in-medicare/
Rae, M. (2021, April 27). How lowering the Medicare eligibility age might affect EMPLOYER-SPONSORED insurance costs. Retrieved April 29, 2021, from https://www.healthsystemtracker.org/brief/how-lowering-the-medicare-eligibility-age-might-affect-employer-sponsored-insurance-costs/?utm_campaign=KFF-2021-Health-Reform&utm_medium=email&_hsmi=123750316&_hsenc=p2ANqtz--0i7HEFNDjTA1bVdV_vCySTMzyRBh_5SWr_p5THDkroOFk-DL0yoAAts1VAZ8uPvWxE_N4VzWt-iW-vYdBRCgSi5SslA&utm_content=123750316&utm_source=hs_email