A common goal for health reform is to decrease total health care expenditures. Adjusting the eligibility age for Medicare beneficiaries has the attraction of decreasing federal spending and shifting costs to private marketplaces. However, these reforms would detract from the pricing leverage present in Medicare, which provides significant cost savings relative to private insurers.
President Obama began his first term in office with proposals to move the American healthcare towards universal coverage with savings dependent on the purchasing power of Medicaid for the poor and private insurers for people of low-to-moderate income. The overall essence of Medicare was left untouched. However, many policymakers who feel entitlement reform is necessary, argue for .
Viewing the issue purely from the perspective of the federal budget, several policymakers have proposed increasing the eligibility for Medicare from 65 to 67. This simple adjustment would decrease federal expenditures and shift the burden of this growing and costly patient demographic from public social insurance to private markets.
A recent study provided an analysis of the price and usage of outpatient imaging as a surrogate for overall healthcare expenditures. Despite similar utilization trends, average spending dropped by 32.4% for patients with existing private insurance who transitioned to Medicare at age 65. These savings to the healthcare system largely due to Medicares pricing leverage – would be lost if patients kept private insurance until their 67th birthday.
Because healthcare cost savings were not associated with any change in healthcare usage it appears that providers prescribing practices and patient access to care were not affected by the switch from private coverage to Medicare.
The size of Medicare, at approximately 50 million individuals, provides an inherent benefit in the ability to negotiate lower prices with providers. Decreasing the size of Medicare (in both beneficiaries and spending) shifts patients from lower-cost public social insurance to higher-cost private insurers who cannot negotiate the same price benefits available to Medicare.
Healthcare spending will dominate American politics in the years to come. The benefits of large single-payer programs like Medicare should be weighed against the benefits of models dependent on smaller private entities.
commentary by Orlando Sola
To slow the growth of Medicare spending, some policy makers have advocated raising the Medicare eligibility age from the current sixty-five years to sixty-seven years. For the majority of affected adults, this would delay entry into Medicare and increase the time they are covered by private insurance. Despite its policy importance, little is known about how such a change would affect national health care spending, which is the sum of health care spending for all consumers and payers-including governments. We examined how spending differed between Medicare and private insurance using longitudinal data on imaging and procedures for a national cohort of individuals who switched from private insurance to Medicare at age sixty-five. Using a regression discontinuity design, we found that spending fell by $38.56 per beneficiary per quarter-or 32.4 percent-upon entry into Medicare at age sixty-five. In contrast, we found no changes in the volume of services at age sixty-five. For the previously insured, entry into Medicare led to a large drop in spending driven by lower provider prices1, which may reflect Medicare’s purchasing power as a large insurer. These findings imply that increasing the Medicare eligibility age may raise national health care spending by replacing Medicare coverage with private insurance, which pays higher provider prices than Medicare does. PMID: 27140993