Raising the current Medicare eligibility age of 65 by two months each year until the eligibility age reached 67 in 2027 would reduce the federal budget deficit by $148 billion over the next 10 years, according to a report released by the Congressional Budget Office this week. That's not pocket change, but in the context of a decade of federal spending and $15 trillion in government debt, it's not a whole lot either. But the real reasons to raise the age have less to do with short-term savings and more to do with the necessity of long-term entitlement changes.
1) Raising the retirement age would encourage more people to work and keep their job-based health insurance until they're older. In addition to reducing the cost of the program, that contributes to a more thriving economy and a broader tax base. Granted, according to the CBO, this effect would be small, but partly because the health insurance subsidies in ObamaCare mean that lots of individuals would retire anyway and purchase subsidized insurance through the state-based exchanges that are scheduled to go into effect in 2014. But if ObamaCare is repealed, the effect would be larger.
2) It would save more money in the long run. Fiscally, the more important effects of raising the retirement age show up down the road. By 2035, CBO estimates that Medicare spending would be reduced by about 5 percent relative to what it would be otherwise. Given the program's explosive projected growth and its singular burden on the long-term budget, a 5 percent reduction in projected spending seems like a significant and worthwhile gain in return for an mild, decidedly incremental change.
3) Raising the Medicare eligibility age would make additional reforms easier. The most important likely effect is political. Reforming Medicare is difficult in part because of resistance by beneficiaries, who hold a lot of political influence; indeed, the fact that some beneficiaries might have to pay more for their insurance (CBO estimates that nearly all would still end up insured) is the primary argument cited by opponents of raising the eligibility age object to the change. That people who benefit from a program like it and/or get financial rewards from it, however, is not much of an argument for refusing to accept reforms, especially with an obviously unsustainable entitlement like Medicare. Diminishing the size of the beneficiary class is likely to diminish resistance to further change, and while it's not enough, it might ultimately make reform easier.