I 

MEDICARE ENTITLEMENT AGE 

OFFICE OF INSPECTOR GENERAL 

AUGUST 1993 OEI-07-91-01600 
EXECUTIVE SUMMARY


PURPOSE 

To assess the results of gradually raising the entitlement age for Medicare to 67 to 

make it consistent with the increased Social Security retirement age in the 

21st Century. 

BACKGROUND 

The Medicare program pays for medical expenses of persons age 65 or older and for 

the disabled. In 1992, the Hospital Insurance portion of Medicare covered 31 million 

aged and 4 million disabled individuals and Imade payments of $85.0 billion. The 

Supplemental Medical Insurance portion covered 33.8 million individuals, with 

program expenditures of $5(1.8 billion. 

Historically, Social Security and Medicare have been closely linked. one example of 

this is that both Social Security and Medicare established 65 as their entitlement age. 

The Social Security Amendments of 1983 increased the age of entitlement for Social 

Security unreduced benefits from 65 to 67 over the period 2003 through 2027, as one 

of several methods to strengthen the solvency of the Social Security Trust Fund. 

However, the age of entitlement for Medicare remained unchanged. 

Recent concerns about the solvency of the Medicare Trust Funds, large deficits in the 

Federal budget, a growing interest in reforming the nation’s health care financing 

systems, and general awareness of longer life expectancies make it important to 

reexamine the effects of coordinating Social Security and Medicare entitlement ages. 

METHODOLOGY 

We conducted literature reviews to examine the relationships of government 

retirement and health insuranm systems, life expectancies, economic trends, and 

factors which could nffect the availability and utilization of health insurance. 

The Health Car-e Financing Administration (HCFA) Office of the Actuary provided us 

with projected Medicare Hospital Insurance Trust Fund savings which would result if 

the Medicare entitlement age were gradually raised to 67 following the same schedule 

as the Social Security program. We performed several analyses of the projected 

savings in order to explain the significance of these estimates in today’s dollars. 

We examined various factors contributing to the uncertainty of the projected savings 

and analyzed the impact of a higher entitlement :~ge on Medicare beneficiaries. 

i 
FINDINGS 

Gradually changing the Medicare enticement age to 67 would save ~he Hospital Ikwrance 

T)-ust Fund more than three quurlen of u lrillion dollan over a 30 year period beginning 

in the year 2003. 

The projected savings are $446 billion for the 25 year transition period, 

years 2003 through 2027. During the five years immediately after full 

implementation of the policy, years 2028 through 2032, the savings would be 

$324 billion. The savings for the 30 year period, years 2003 through 2032, 

would be $770 billion. 

The annual savings would be approximately $65 billion per year in the years 

immediately after the entitlement age reached 67. In today’s terms, this 

amounts to between $4.7 and $15.7 billion per year, depending on the measure 

used. 

Medicare Hospital Insurance expenditures would be reduced by 3.4 percent and 

the trust fund deficit by 5.() percent for the year 2028. 

The Medicare Supplementmy Medical Insurance program would ako save sipificant 

amounts. 

If the entitlement age hnci heen changed to age 67 in 1991, Supplemental 

Medical Insurance savings would have been $2.4 billion that year. 

Estimates of Jiulure savingf ure imprecise due 10 a number of uncertainties about which 

we can make only rough assump~ions. 

Actual savings will depenci on future prices, utilization patterns, work patterns, 

availability of employer provided insurance, and advances in health care 

technologies. 

l%e impact of raking the enlitlemeru age on fulure Medicare bene~ciaries is not known. 

Howeve~ provkiing subs~an~iul advance notice OJlhe change, as has been done by Social 

Security, can reduce polential negative coruequence.s. 

From our discussion of savings, it is obvious that increasing Medicare’s 

entitlement age woLlld contribute to a healthier Trust Fund. This is not an 

insignificant consideration, in light of estimates that the Medicare Trust Fund 

will become insolvent in 1999. 

However, other effects that raising the entitlement :lge would have on future 

beneficiaries, such as changes in their access to needed medical services, are 

difficult to preciict. The irmpact woLIILiciepend on whether they work longer, 

ii 
have access to other insurance, or delay health care until they are entitled to 

Medicare. 

If enacted, this change woLIld have to take into account alternative sources of 

financing that woLJld be available to those who would be denied Medicare 

coverage. Furthermore, a phased-in transition which parallels Social Security’s 

is essential if such a change is adopted. This would ensure that those affected 

would have appropriate advance warning of the change in time for them to 

make alternative health insurance arrangements. 

... 

Ill 
TABLE OF CONTENTS


PAGE 

EXECUTIVE SUMMARY 

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..1 

FINDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - . . . ...-...8 

. 30 Year Hospital Insurance Savings


� Annual Savings


. Savings as a Percent of Expenditures


� Savings as a Percent of Deficit


� Supplemental Meciical ]nsurdnce Savings


� Uncertainties of Savings Estimates


� Impact onBeneficiaries


APPENDICES


khngevity Increases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..A-1


B: Savings Projection s..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..B-l


C Annual Deficits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..C-l


D. Bibliogmphy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. D-l

INTRODUCTION


PURPOSE


To assess the results of gradually raising the entitlement age for Medicare to 67 to


make it consistent with the increased Social Security retirement age in the


21st Century.


BACKGROUND


The Social Security Act, [Public Law (P. L.) 74-271], and related laws established a


number of Federal programs, including Social Security Retirement Insurance benefits


and the Medicare program.


The Retirement Insurance benet’its program (Social Security) insures and provides


monthly benefits (unreduced if taken at age 65) to individual and their dependents


when the individual retires or redL]ces their income to levels that permit these


payments. The benefits are funded through the tax contributions paid by employers,


employees, and self-employed individuals.


The Medicare program is a health insurance program that provides payments for


medical expenses incurred by Social Security retirees ages 65 or older, some disabled


beneficiaries, and for some other individuals with chronic life-threatening illnesses.


The Medicare prograln is administered by the Health Care Financing Administration


(HCFA). Medicare paylnents are funded through taxes paid by employers, employees,


and self-employed individuals, with some funding from general revenues. Additional


funding is obtainecl through monthly medical insurance premiums paid by Medicare


beneficiaries who elect this coverage.


The Medicare program has two parts. Hospital Insurance, or Part A, and


%pplementary Medical ]nsurance, or Part B.


The Hospital Insurance program pays for inpatient hospital services, inpatient care


provided in skilled nursing facilities, home health care, and hospice care. Program


Trustees reported that in Calendar Year 1992, approxi]nately 31 million aged and


4 million disabled individuals were covered. In 1992, total incolme was $93.8 billion


while expenditures were :lpproximately $85.() billion.


The Supplementary Medic:~l [nsurance program pays for physicians’ services,


outpatient hospital services, ciurable medical equipment, laboratory services, and other


medical services and supplies. Program Trustees reported that in 1992, approximately


33.8 million individuals were covered. Income in 1992 was $57.2 billion


(or $57.3 billion rounding individual income amounts). General revenues


1

provided $41.4 billion or 72.3 percent of this income. Premiums paid by enrollees 

provided another $14.1 billion or approximately 24.6 percent of the income for 1992 

and the remaining $1.8 billion or 3.1 percent was from accumulated interest and other 

income. Expenditures for 1992 were approximately $50.8 billion. 

Establishing 65 as the Entitlement Age: 

For Social Securily 

Otto von Bisrnarck of Germany is general]y recognized as establishing the first


compulsory old-age insurance program. That program established 70 as the


retirement age. This was later reduced to age 65 in 1916. Britain followed suit in


1925 by establishing 65 as its program retirement age. A 1935 survey of State old-age


insurance laws showed that 29 out of 42 States (69 percent) selected 65 as the


eligibility age for their pensions. The Social Security Act, enacted in 1935, established


65 as the normal retirement age. In addition, The Railroad Retirement Act


(P.L. 73-485) enacted in 1934 and subsequent legislation, used 65 as the retirement


age.


Our research shows that the original selection of 65 for the %cial Security retirement


age was somewhat arbitrary. in the 1930’s, the planners of Social Security considered


the retirement age of 65 to represent a good compromise between the higher costs


associated with paying benefits at age 60, and the limited eligibility for these benefits


which would occur, due to shorter life spans, if age 70 was selected.


For Medicare 

In the 1930’s the President’s acivisors considered establishing a Federal health 

insurance program as purt of the Social Security legislation. However, due to 

significant Congressional opp~~sition to this proposal, health insurance coverage was 

not included in the Social Security legislation. 

In the next three decades, Congress considered various legislative proposals for some 

form of Federal health insurance coverage. Health insurance bills were submitted in 

the 1960’s to cover medical expenses for elderly individuals. 

.	 In 1961, the Forand hill was introduced in Congress. This bill proposed 

Federal health insurance of hospital and nursing home expenses incurred 

old-age benefici~lries. 

.	 In 1963, the King-Anderson bill was introduced in Congress. This bill sought to 

provide hospital and related services to aged beneficiaries covered under the 

Social Security system. The Congressional hearings on this legislation 

established that 65 should be the age of entitlement for these benefits. No ages 

above 65 were discussed. Entitlement ages below 65 were discounted because 

a lower age woLlld include too lmnny individuals who were still working. 
-----

. .

---

� In 1965, Congress en:~cted Health Insurance forthe Aged legislation [Medicare 

(P.L. W-97)]. Ourreview of C(Jngl-ession:~ lcommittee reports shows that 

entitlement ages other th:tn 65 were not seriously considered. The hearings 

included discussions that workers generally retire at age 65 and are then in 

need of the basic protection that would be provided in the proposed Medicare 

legislation. 

Legidalion Increasing lhe Social Secunly Retirement Age 

In the early 1980’s the Social Security Trust Fund was rapidly depleting its resources 

to pay benefits. The President established the National Commission on Social Security 

Reform. This hi-partisan Commission issued a report in January 1983 to the White 

House and to Congress. The report recommended the gradual increase in the Social 

Security retirement age. Factors cited by Commission members include: 

� older workers will be in greater demand in future years; 

� the ratio of younger workers to retirees will decline after the turn of the 

century, causing significant increases in taxes. An increased age (for Social 

Security entitlement) would reduce this burden; and 

� future beneficiaries can adjust to an increased age (for Social Security 

entitlement) if they are given sufficient notice. 

In 1983, Congress enacted the Social ‘%curity Amendments of 1983 (P.L. 98-21), which 

instituted a number of measures to strengthen the solvency of the Social Security Trust 

Fund. One of these measures was to increase the retirement age over the period 

2003 through 2027 for unreduced monthly benefits (Table 1). 

Table 1 

SCHEDULE FOR INCREASING SOCIAL SECURITY RETIREMENT AGE E::-

=1:......”. “.!.F~lR~t!!irniritAi{”::I:EtiveD”tes 

01/02/38 - 01/01/39 r--”--” ~-’- ”-”””-”- ~65 ,~s-:ri~-~~ri~n~h~”---”l 03/02/03 - 03/01/04

01/02/39 - 01/01/40 ~65 yrs and 4 months 05/02/04 - 05/01/05 ... . .. 

01/02/40 - 01/01/41 .1~65 yrs and 6 lmonths 07/02/05 - 07/01/06 ..—. ______________ 

01/02/41 - 01/01/4; - ‘“-- 65 yrs and 8 months 09/02/06” - 09/01/07 ___ .. ....E 

01/02/42 - 01/01/43 65 y-s and 1() months . I 11/02/07 - 11/01/08 .__:

01/02/43 -01 /01/55 66 yrs , 01/02/09 - 01/01/21 

01/02/55 - 01/01/56 ~66 yrs and 2 months ..—.<—...—_. ~03;02/21 - 03/01./22 -.—... ~ 01/02/56 - 01/01/57 ..L–I 66 yrs and 4 months j 05/02/22 - 05/01/23

3

-- ---------

SCHEDULE FOR INCREASING SOCIAL SECURITY RETIREMENT AGE 

k:::==::FFcE~T:G;cGe-:: ‘Hective Dates 

IL-----

IL----------------- -rn(’= I 01/02/57 - 01/01/58 ---i$:’:s:’n’i~ -107’02’23-07’01’24 

01/02/58 - 01/01/59 i“ “S“n’“non’” [ 

~09/02/24 - 09/01/25 

----k-----–---–– I

l~:–---~--y:~~~months”ths 1‘1’02’25 -11’01’2’ I 

01/02/60 and later ~G7 yrs 01/02/27 and later ———. .—..—— —

This change was made in recognition of two primary factors: 

� people are living longer- (Appendix A, Chart 1), and 

8	 increasing the retirement age would provicie for the financial integrity of the 

program. 

During consideration of this legislation, the Senate proposed an amendment that 

would have shifted the age of eligibility for Medicare in tandem with the increased 

Social Security retirement age. The Senate report stated, “The minimum age for 

eligibility for Medicare benefits woLlld continue to be tied to the age at which 

unreduced retirement benefits are first available”. This amendment was not adopted; 

therefore, no change was made to the eligibility age for Medicare benefits. However, 

this amendment proposal did affirm the belief by some members of Congress that 

there is a historical relationship between the eligibility age for Social Security and 

Medicare benefits. 

METHODOLOGY 

Literature Review 

We researched the legislative history of the Social Security and Medicare entitlement 

ages. We also conducted literature reviews to learn about the relationships ofi 

government retirement and health insurance systems, both foreign and domestic; life 

expectancies; economic trends; and factors which could affect the availability and 

utilization of health insurance. 

HCFA’s Acluuriul Projection 

At our request, and working in consultation with our office, the HCFA Office of the 

Actualy provided us with projected Medicare Hospital Insurance Trust Fund savings 

which would result if the Meciicare entitlement age was made to correspond to the age 

of entitlement to full Social Security benefits. This projection takes into account such 

factors as: reimbursements rates for aged insured beneficiaries; the size of the 

4

--

--

--

population whose benefits would be delayed; health care utilization rates; increasing


medical costs; and average hourly earnings increases.


The Actuary’s estimate covers ye:~rs 2003 through 2032, Years 2003 through 2027 are


the transition years, during which the Medicare entitlement would be gradually


increased if it followed the same schedule as the age of entitlement for full Social


Security benefits. At the beginning of year 2027, the entitlement age would reach


age 67; no further increases wou]d occur after that date. The years 2028 through 2032


make up the five year period immediately following this transition period.


Appendix B, Charts 2 and 3 provide a comparison between expenditures reduced by


the projected savings and expenditures under current law, and a summary of Hospital


Insurance Trust Fund savings for the 30 year period. Appendix C, Charts 8 and 9


reflect Trust Fund expenditures and income, and compare the Trust Fund deficit


under the current law and the age 67 proposal for the years 2028 through 2032.


Portraying Savings in Today k Terms 

Because the gradual change in the retirement age and the associated actuarial


estimates span a period ot’ 30 years which ends 39 years from now, and because the


savings are large, it is difficult to grasp the signific:~nce of the amounts calculated. We


therefore performed several analyses to describe the results in today’s terms and to


gain additional perspective regarding the consequences of the change in entitlement


age. The results are expressed as a range of estimates, reflecting the following


concepts and methods.


Conslanl Dollms First, we noted that the Actuary’s projections were based on 

current dollars. We converted the annual savings to constant dollars using the 

Consumer Price Index. The rate averaged 3,92 percent. The results are found 

in Appendix B, Chart 4. 

Today’s Prices Second, we know that medical costs generally outstrip the 

Consumer Price Index. For this reason, the Actuary’s projections used the 

Prospective Payinent System mnrket basket rate and health industry wage 

increases to approximate health care inflation. The total average annual price 

increase included in the Actuary’s estimates is 5,09 percent. We therefore used 

this rate to calculate the value of the Actuary’s projected savings at today’s 

prices. The result is found in Appendix B, Chart 5. 

Presenl Value Third, we recognize that the time value of money may be 

affected by factors other thnn general inilation or specific price increases. For 

example, economists adwxate considering the so called “present value” of 

future cash streams by taking into account the interest that could be earned by 

investment. The general practice is to reduce future dollar amounts to a 

present value which if invested today woLlld grow to that future amount. A 

private business c:ln perf(>rm this calculation by using an interest rate at which 

5

--

--

it can invest its money today. Economists generally agree that a similar 

adjustment should be made in analyzing government savings and expenditures, 

but there is no consensus on the rate that should be used. We decided to use 

the rate of interest projected to be earned by the Medicare Trust Funds. This 

rate averaged 6.32 percent. The result is found in Appendix B, Chart 6. 

Current Po&T Fourth, to gain additional perspective regarding the savings in


today’s terms, we prepared our own analysis of the number of Medicare


beneficiaries aged 65 and 66 and calculated the Medicare Hospital Insurance


payments made on their behalf in 1991. Our data was taken from the HCFA


1991 Common Working File, one percent sample (1992 data was not available).


our calculations show how lmuch money would have been saved by the


Medictire Hospital Insurance prog-aln if the Medicare entitlement age was


raised to age 67 in 1991. We recognize that this method does not take into


account the increase in the number of Medicare beneficiaries in future years,


which woLlld increase the estimated savings. Our estimate is intended purely as


a very rough approximation of the financial ilmpact of the entitlement age


change in terms that can be appreciated now.


Savinxs as a Percentage of Expenditures We obtained from the HCFA Actuary


their estimates of total Medicare Hospital Insurance expenditures under current


law during the 30 year projection period based on the same factors which they


used in calculating savings. This allows L]Sto express the savings as a percent of


expenditures, another way to gain perspective in coming to grips with large


dollar almounts in the ciistant future (Appendix B, Chart 7).


We performed a silmilar analysis of 1991 expenditures for Medicare


beneficiaries aged 65 and 66. While we noted above that our method


understates total dollar savings because it ti~ils to take into account the increase


in the beneficiary population, it seems to overstate the percentage of savings


for the same reason--it does not take into account the increased use of


Medicare reimbursed health services by beneficiaries over the age of 67 in the


distant future. Still, it gives us another view concerning the significance of


changing the entitle lnent <ige.


These analyses pr(wide a range ~~t’t’(~urestimates of the annual savings resulting from 

raising the Medicare entitlement age to 67, and two estimates of the Medicare 

Hospital Insurance Trust Fund savings as a percentage of expenditures. 

Supplemenla[ Medica[ Insurance Tnst Fund 

The HCFA Actuary did not make long range projections for the Supplemental


Medical Insurance Trust Fund. We therefore made our own estimate of savings for


this program using the technique described above for the Hospital Insurance program.


That is, we calculated the amount of Medicare Supplemental Medical Insurance


6

payments macleto beneficiaries aged65 and66during 1991 (1992 data was not 

available). This was based on the one percent sample of the Common Working File. 

Uncertainly AnuZYsiv 

In addition to putting future cash flows in today’s perspective, using a range of 

estimates serves another purpose as well. Projections made Pzr into the future are 

extremely uncertain. Presenting the results as a range rather than a single amount 

reminds the reader of the inherent uncertainty of such projections. In the Findings 

section of this report, we also describe a number of’ factors which cannot be accurately 

predicted but which can greatly affect the savings achieved by increasing the 

entitlement age. 

Impact Analysis 

Changing the Medicare entitlelnent :Ige would have significant impact on Medicare 

financing. It could also affect the health care prwctices and finances of Medicare 

beneficiaries. Based on our ongoing research and studies of Medicare and health 

financing policies, we identified some of these impacts. They are briefly discussed in 

the Findings section of the repc~rt, 

We did not address the potential i!mpact that a change in the Medicare entitlement 

age could have on other programs sU~h as Supplemental Security Income and 

Medicaid. However, there could be an impact on these programs if individuals of 

limited financial means find themselves in need of health car-e coverage and assistance 

income during those months before they become entitled to Medicare. 

our review was conducted in accorctance with the Quulily Standards for Inspection.s 

issued by the President’s Council on Integrity and Efficiency. 

7

FINDINGS


Gradually changing the Medicare entitlement age to 67 would save the Hospital


Insurance Trust Fund more than three quarters of a trillion dollars over a 30 year


period beginning in the year 2003.”


According to the actuarial projection, gradually changing the Medicare entitlement age


to 67, following the sa[ne schedule mandated under current law for the age of


entitlement to full Social Security benefits, would reduce Medicare expenditures for


the Hospital Insurance program by $446 billion during the 25 year transition period,


years 2003 through 2027. During the five years immediately after full implementation


of the policy, years 2028 through 2032, the savings would be $324 billion. The savings


for the 30 year period, years 2003 through 2032, would be $770 billion.


While there are other options available for a transition period, such as a shorter


period than 25 years, for reasons discussed in the background, we have tied our


projections to the %cial Security age and transition period.


The annual savings would be approximately $65 billion per year in the years


immediately after the entitlement age reached 67. In today’s terms, thk amounts to


between $4.7 and $15.7 billion per year, depending on the measure used.


In the year 2028, the first year after the entitlement age reached 67, Medicare


Hospital Insurance expenditures would be reduced by $60.3 billion. Five years later,


in the year 2032, this would rise to $67.4 billion. To better understand the significance


of these amounts, the f~~ll(nving statements express, in varying ways, the annual savings


in today’s terms.


Corz.rlunl Do&Ks. Eliminating the effects of genera] inflation, the annual savings 

would be $15,7 billion. 

Todav’.s F7ice.s. Eliminating the effects of medical inflation, the annual savings 

would be $10.6 billion. 

Present Value. The present value of annual savings, based on the average rate 

of interest for the Hospital Insurance Trust Fund would be $7.1 billion, 

Currenl Policy. li’ the age of entitlement ha~i been changed to 67 in 1991, the 

Hospital insurance Trust Fund would have saved $4.7 billion that year. 

s 
Medicae Hospital Insurance expenditures would be reduced by 3.4 percent.


The $60.3 billion saved in the year 2028 is 3.4 percent of the estimated $1.8 trillion


which would be expended by the Medicare Hospital program if the entitlement age


remains at 65.


The Medicare Hospital lnsurmce deficit would be reduced by 5.0 percent.


We have calculated the projected deficit in the five years after the transition period


before and after applying the projected benefit savings (Appendix C, Chart 9). The


percentage of savings decreases fro[m 5.0 percent in 2028 to 4.3 percent in 2032, due


primarily to the rapid growth in the deficit from $1.19 trillion in 2028 to $1.64 trillion


in 2032.


The Medicare Supplementary Medical Insurance program would also save significant


amounts.


As noted in the Meth~xiolc)gy section, the HCFA Actuary did not make projections of


the Medicare Supplementary Meciic:ll Insurance Trust Fund expenditures that would


result from a change in entitlement age. However, we calculated that if the


entitlement age had been changed to age 67 in 1991, Supplelnental Medical Insurance


savings, including a small number of disabled beneficiaries, would have been $2.4


billion or 6.3 percent.


Estimates of future savings are imprecise due to a number of uncertainties about


which we can make only rough assumptions.


Estimating the financial effects of today’s decision on program costs 34 years hence


requires that we make a nulnber of :lssumptions about future beneficiaries’ use of


medical services, their future :lccess to private insurance, and the future costs of


medical care. For example, the nl~~del prepared by HCFA’S Office of the Actuary,


discussed above, assumes that beneficiaries will use services in patterns similar to


today’s; that most beneficiaries will continue working and purchase employer group


health insurance until they become eligible for- Medicare, but some will become


uninsured; and that costs of medical care will rise at moderate rates throughout the


period. While we believe these to be reasonable assumptions, different conclusions


would lead to different estimates. For example:


.	 If older Americans lose access to affordable, employer-provided health 

insurance as a result of early retirement, they might forgo preventive care and 

delay needed services until they became Medicare entitled. Costs to the 

program wou]d increase as beneficiaries entered the program in poorer health 

and in need of services which had been delayed. 
.	 If health care costs rise at rates far above the Consumer Price Index or 

Prospective Paylment System market basket rate, the program would save more 

than we’vec:llcul:~ted by not coverin gthoseag,e d65and66. 

.	 Advances in medical technology might have an effect on our estimates as well. 

For example, ne\vtechn(~l(>gies tc)detect ~lndsuccessfully treat diseases might 

create healthier 65 and 66 year olds who use fewer services than their 

counterparts today. In this case, the program would save less than we’ve 

estimated by not covering this groLlp. On the other hand, demand might 

increase for new high technology services by 65 and 66 year olds, and Medicare 

would save more than we’ve estimated by not covering this group. 

�	 Coverage policies will also have an effect on our estimate. If Medicare 

coverage policies are more generous than private insurance policies, 

beneficiaries Imight delay some care until they become Medicare eligible and 

the services are covered, Our projections would then be overestimated, since 

the elderly w[~uld simply defer their health care consumption until older. 

The impact of raising the entitlement age on future Medicare beneficiaries is not 

known. However, providing substantial advmce notice of the change, as has been 

done by Social Security, can reduce potential negative consequences. 

Increasing Medicare’s entitlement age would contribute to a healthier Trust Fund, 

even though the effect on the projected deficit is modest. Clearly this change would 

not, in and of’ itself, solve the fiscal crisis facing the program. Any steps that can be 

taken now, however, to begin to adciress the pr-ojecteci financial shortfalls in the 

program would help beneficiaries by ensuring the solvency of the program and 

potentially reduce the need to call for increased contributions from beneficiaries or 

taxpayers to keep the program fiscally sound. On the other hand, other considerations 

might argue against making such a change. A healthier Trust Fund, while not an 

insignificant benefit, might be outweighed by potential negative effects on 

beneficiaries. For example, would beneficiaries have access to other, comparable 

health insurance at ages 65 and 66, prior to entering the program’? If not, would they 

delay seeking and receiving needed health care daring this time? Would the States 

then face adciitional costs of caring for- or insuring these older Americans’? Would 

hospitals face larger- uncompensated care burdens’? 

The responses to these qucsti[~ns can (~nly be speculative. This is particularly true, 

since both the phased in Sc~ci:~l%curity entitlement age change and health care 

reform efforts will almost certainly affect employment patterns and older Americans’ 

access to private health insurance at affordable prices. For example: 

�	 Older Americans lmight choose to delay retirement to an older age in the 

future, in light of the change in Social Security entitlement age and the fact that 

Americans are living longer (Appendix A, Chart 1). Consequently, they may 

continue to be covered under their elnployer’s health plan until they become 

10

eligible for Medicare. Older Americans might also feel forced to continue 

working in order to remain eligible for their employers’ group health plan. 

.	 Older Americans may continue toretire prior to becoming eligible for Social 

Security, as they have in the past. Upon retirement, they might continue the 

employer’s group health plan, forego private insurance, or choose a modest 

insurance package. 

�	 People may delay seeking needed care. This could result in increased costs 

once medical attention is sought, as well as personal suffering by the 

beneficiary. Older Americans might also seek and receive needed care, but be 

unable to pay for it, thus creating financial pressures on States through the 

Medicaid program or other State program for the uninsured, and providers. 

If enacted, this change would have to take into account alternative sources of financing


that would be available to those who would be denied Medicare coverage.


The amount of advance notice provided of the change would also affect whether


negative consequences to older Americans would arise. Without advance notice, older


Americans would be unable to plan for their health care needs and costs during the


years that would no longer be covered by Medicare, A phased in transition,


paralleling the transition to an older entitlement age for Social Security, would allow


older Americans time to plan for their health care needs and expenses and help avoid


undesirable consequences.


11

APPENDIX A


LONGEVITY INCREASES


In 1980, the~~ver~~ge life expectancy forpersons whohadattained age65 was79 years 

for males and 83.4 years for felmales. By the year 2000, this is expected to increase to 

80.4 and 84.4 years respectively, Chart 1 demonstrates the gradual increase in life 

expectancy for males and females that attain age 65 through the year 2070. 

Chart 1 

Projected Life Expectancy in the U.S 

For Persons Who Attain Age 65 

2070 sex 

2060 ~ Females 

m MaIes 

~ 2040 

22020 

-% 

3

4 

2000 

g 1980 

1960 

1940 

Projected Life Expectancy 

source The 1!)93Annual Report of the Board of “~rustms 0[ the Federal O1d-Agc and Survivors Insurdnce Fund and the 

Federal Disability Insurmcc Trust l~und 

A-1

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APPENDIX B


SAVINGS PROJECTIONS


In conjunction with our office, the HCFA Office of the Actuary projected the Hospital 

Insurance Trust Fund expenditumsand savings resulting from gradually increasing the 

Medicare entitlement age to 67 on the same schedule as the age of entitlement for 

unreduced Social Security benefits. The base year used in calculating the savings was 

1990, themost current data avaik~ble. Theresults areshown in Charts 2and3. 

Chart 2compares the projected expenditures under current lawandthe proposed age 

67 entitlement provisions. Correspondingly, Chart 3projects the Hospital Insurance 

Trust Fund savings through 2028, and for the subsequent 5 years. 

Comparison 

2600 —–-

= 

E~---;i[i[ 

f:iiiBMli[BBlll![llllilli’1~’ 

03040506070 

Source Dcpmlmcnl of 

Chart 2 

of Projected HI Trust Fund Ex :penditures 

Proposal versus Current Law 

———. 

——— . 

,~j~_j~#~:v[T 

‘i 

S09101112 1314151617181920212223 242526272 S29303132 

Calendar Years 2003 - 2032 

1Icallh and I Iuman Services, I kxllli Cm [financing Adminislrdtion, oflkc Oflhc Actuiuy 

B-1 
--

Chart 3 

Projected HI Trust Fund Savings 

Achieved By Increasing the Entitlement Age 

E=====’ 

h 10 

?? 

*O 

03040 S060708091011 1213 141 S16171S 192021222324252627282930 

Calemdas- Years 2003 - 2032 

Source The Dcparimcnt of I Icallh and I Iumi:n Services, Office of hspwlor (kncral 

Based upon the HCFA Actuary’s estim:ltes, we converted the projected savings 

eStimateS froln current dollars to constant do]lars by backing out genera] inikiliOII as 

measured by the Consumer Price Index. This rate ~lverage~ 3.92~ercent. The 

resulting constant dollar estimates ~lre shown in Chart 4. 

Chart 4 

Savings in Constant Dollars 

g ,8 +_–-. .. ..-... - . m,: 

,,, ,, 03040506070809101112 13141516 17181920212’2 23242=282930 3132 

Calendar Years 2003 - 2032 

Source The Dcpartmcnl OK I [callh and I luman Swviccs, oflicc of Inspwlor General 

B-2

.

We also converted the actuarial estimate to today’s prices by subtracting price


increases specific to the Medicare Hospital Insurance program. For the calculation,


we used a rate of 5.09 percent, the average annual rate of total price increases used in


the actuarial estimates. The results are shown in Chart 5.


Chart 5 

Savings in Today’s Prices __— ~--—-””-”” “-‘“”-

__. —.. E-”-”- ——— —.— _.—

rq 

W* 

q­

%. *——-* E“- ~o” @M—-

03040506070809 

Calendar Years 2003 - 2032 

Source The Dcpartmcnl of I Icallh and I Iuman SCMCCS, [)llkc of Inspwlor rkrrcrd! 

We computed the present value of the savings estimates using 6.32 percent, the 

average rate of interest projected to be earned by the Medicare Trust Funds. The 

results are shown in Chart 6. 

Chart 6 

Present Value of Savings 

10 

-ZJ9 —-. —..—. .- _—— 

a

>8 ** ~ _eL-eOQ,

7 —WA —\ 

*4 

E .I= -’ ‘“-’--”’’’: . .. . -——-*—-– ~ 

-4 

.E1 

_b 

+. !3’“—–—–, H,, 

03040506070809101112 13141516171 S19202122232425: 

Calendar Years 2003 - 2032 

Source The Dqrwlmcnl of 1Icakh and 1Ium:m Scrviws, (Mlicc of Inspcclor General 

B-3

--

------------ -------- q~H&e+ei -g-~ %2-------- -y–

------

——

The HCFA Actualy also provided us with projections of Medicare Hospital Insurance 

expenditures that would occur under current law, i.e., without raising the entitlement 

age. These used the same underlying assumptions as the projections of savings. Thus, 

we were able to compute the percentage that savings are of current law expenditures. 

The results are shown in Chart 7. 

Chart 7 

Savings as a Percent of Current Law Expenditures 

5 

E 4.5 

““””-”””-””
 a * E-” -..::. “-”- “--”””’’”” --:::.”


3.5 ... 

‘+------- ~~ ‘---- ~ 3 *--- ~~-— -- ---–- -—-———— 

t% 2.s ---------~ “?’ 2 ~--- ..=—~. —

.—. 1.5 

1
 qd*?+ W=...____–. –_. 0.5 ~—O— .— — . 0 E“lllllll

03040506070809101112131415 

Ill.- —

17181920 232425 272829303132

Calendar ears 2003 - 32 

SOurctx Thc Dcparlmcnt or f IcAIII and I Iuman Swviccs, 1Icalth (Mc llnancing fkfministrdlinn, ~11’ke Of lk Actualy 

Finally, we estimated the savings that would have been achieved in both the Hospital


Insurance and the Supplemental Medical Insurance programs if the Medicare


entitlement age had been increased to 67 in 1991. We calculate that the Hospital


Insurance program would have saved $4.7 billion and the Supplemental Medical


Insurance program $2,4 billion in 1991 if 65 and 66 year old beneficiaries had not


been covered. These savings incorporate the offset of $(1.8 billion in revenues, which


is the amount of premiums that would not be collected from 65 and 66 year olds if the


entitlement age is revised. We also excluded End St:~ge Renal disease beneficiaries


from this calculation but were unable to exclude non-End Stage Renal disease disabled


65 and 66 year olds who would be eligible for benefits regardless of age.


B-4

APPENDIX C


Chart 8 

Projected HI Trust Fund 

Expenditures and Income Under Current Law 

28 29 30 31 32 

Calendar Years 2028 - 2032 When Proposal is in Full Effect 

!%urc% The Dcpmlmcnt or 1Icalth und 1Iuman Scrviccs, office of’ Inspcclor (kncrdl 

The full extent of the progressive Trust Fund deficit for years 2028-2032 is 

demonstrated in Chat-t X For the sake of colnparison, we also show the net deficit 

under the present current law and the age 67 proposals in Chart 9. Because of 

rounding there may be discrepancies in the current law deficit between Charts 8 and 9. 

Chart 9 

Comparison of Projected HI Trust Fund 

Annual Deficit - Proposal versus Current Law ~.,~~_____ _.._......... ... .-–-–.–.–-. . 

1.7 +——.- .- — s— ~ 1.65 --:::----- — 

2? 

a 

1.6 =i Y —_~ 

* / ~c urrent Law 

~. .-F 

=J B 12 F----”---- -“:- “--: “-’ - ‘“- “-”””’ -7 -

1.55 

i==”----” —-

—T 

- Proposal 

d --q- .- ____ 

~ ‘“2 -t-%”--F%i-””-””- ““ y ““” --::” ‘-- – .= 1.1s ++ 4//J’&---­

2 

::g~g:=[”f-”.’ ~:: ~ 5 ‘ : — . ,. /,/i-–. I lFlf ., — 

28 29 30 31 32 

Calendar Years 2028 - 2032 When Proposal is in Full Effect 

Source Thc Dcparlmcnl of I lcalth and [ Ium:m Scrvic~, (Mlicc or Inspwtnr (kncral 

c-1

APPENDIX D


BIBLIOGRAPHY


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Davis, Kenneth S. “The Birth of Social Security.” American Heritage, (April/May 

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Derthich, Martha. PolicVmakinU for Social Security, Washington, D. C.: The Brookings 

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Douglas, Paul H. Social Security in the United States. New York: McGraw-Hill Book 

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Public Law 98-21, “Title 11- Additional Provisions Relating to Long-Term Financing 

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D-1

U.S. Congress, House, Colmrnittee on Ways and Means, “Communication from the 

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D-2