Raising Medicare's Retirement Age Won't Save That Much Money. It's Still A Good Idea.

Mercatus Center economist Arnold Kling explains why raising Medicare's eligibility age by just a few years won't save a whole lot of money:

The reason that raising the age of eligibility for Medicare does not produce a large effect is the phenomenon of "morbidity compression." Basically, no matter how long you live, if you die a natural death, most of your health problems will be concentrated in roughly the last three years of your life. Bad problems kick in at around 72 for people who die at 75, and at 92 for people who die at 95. These days, if you make it to age 65, there is a good chance you will not have really expensive medical problems until you are in your late 70s, so raising the age of government dependency for health care does not do much to reduce Medicare's cost.

According to the Congressional Budget Office, slowly phasing in a shift from today's Medicare eligibility age of 65 to an eligibility age of 67 would save about $125 billion over the next decade. That's not circus peanuts. But given that in 2010 Medicare spent a little more than $500 billion and is projected to spend almost $1 trillion annually by 2021, it's not exactly a fiscal game-changer. Instead, it would put a solid point or three on the deficit-reduction board. Overall, however, the program would still be zipping merrily down the road toward insolvency.

Even still, there are good reasons to raise the program's eligibility age anyway. For one thing, as the Center for a Responsible Federal Budget noted in June, one of the reasons that spending on Medicare is expected to rise so dramatically is that the Medicare population is growing older. As that happens, it makes sense to concentrate public resources on the older population. It would also encourage individuals to work and be productive for longer, which should happen as lifespans extend further. 

There's also a political argument for raising the eligibility age: It could help make it easier to truly transform the program. One of the reasons that Medicare is so difficult to reform, despite its well-known broken finances, is the size, commitment, and influence of the coalition of beneficiaries. As Kling argues, "reducing the proportion of the population on Medicare would help to lower the political rigidity that surrounds it." Raising the program's eligibility age, then, is a reform that could pave the way for bigger, better reforms—and help demonstrate that structural changes to the program wouldn't be painful as some people seem to think.