Fun With Medicare Math

Q. What happens when the smartest guy in Oklahoma moves to Texas?
A. The average IQ of both states drops.

I was reminded of that old joke when I was reading about some of the proposed ways to cut the cost of Medicare. One of the policy changes discussed as part of the deal to raise the federal debt ceiling was increasing the eligibility age for Medicare from 65 to 67. Sarah Kliff, in a Washington Post blog, warns of a possible negative consequence:

"A recent Kaiser Family Foundation report found that premiums in the [states' health insurance] exchanges would rise about 3 percent if all eligible 65- and 66-year-olds enrolled. Medicare would see a similar premium increase, with its youngest, healthier subscribers leaving the program."

That is, if Medicare drops them and the insurance exchanges are forced to enroll them, this addition of older (and therefore, on average, sicker) Americans will cause exchange premiums to go up. And if Medicare loses these very same 65- and 66-year-olds (who are, on average, healthier than the even older Medicare enrollees who would be left in that program), then Medicare's premiums will go up, too. Sounds like a lose-lose situation, right?

After the jump, how to turn it into win-win.

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Suppose, instead of *raising* Medicare eligibility age, we *lowered* it to, say, 60? Then the reverse logic would play out. Exchange premiums would go down because they'd be losing their oldest (and sickest) enrollees. And Medicare premiums would go down because Medicare would be picking up younger (and healthier) enrollees. Win-win!

There has to be something wrong with the logic here, right? Yes, there is. The analysis doesn't include the cost to government. Even though both groups' premiums would go down, the federal government's costs would go up. That's because more Americans would end up on Medicare, whose costs are borne more heavily by the government. The insurance exchanges' costs are borne more heavily by enrollees' premiums. In other words, those drops in premiums for both groups would be made possible by increased government costs overall.

So, don't expect the Medicare eligibility age to go down, even if that would reduce premiums for both the young and the old. (It would also reduce administrative overhead overall, as Medicare overhead is less than private insurance companies' overhead. But that's another story.) Instead, expect the Medicare eligibility age to go up, because that reduces government's costs.

Note that nothing here helps control the growth in health care costs in total. That's what the health care reform debate of 2009 was all about. Democrats filled the Affordable Care Act with measures designed to deliver better health care at lower cost. Republicans fought them every step of the way (remember "death panels?"). No, today's debate is not about controlling health care costs. It's about shifting the costs from government to individuals. The affluent will be able to afford the increased costs. The poor won't. Leaving us with a win-lose situation. Like always.

It's almost as if the average IQ of Washington, DC, just keeps dropping no matter who moves there. ;-)