The Policy Implications of Medicare at 60
Medicare at 60 sounds simple enough – but is it? Chip asked expert, Dr. Lanhee Chen, on this episode to explain his latest research exploring the potential policy and its complications. Chip and Lanhee explore the many questions his report exposes that policymakers must consider to make this potential policy an actual possibility – from how to pay for the $400 billion price tag to the impacts on health coverage and access to care.
Read the report entitled “The Fiscal Costs of Medicare at 60”.
Speaker 1 (00:05):
Welcome to Hospitals In Focus from the Federation of American Hospitals. Here’s your host Chip Kahn.
Chip Kahn (00:14):
You’ve lightly seen in the headlines, a plan for president Biden and progressive congressional Democrats called Medicare at 60. The premise sounds simple, just drop the Medicare eligibility age from 65 to 60, and the government can cover more people at lower healthcare costs. But what sounds too good to be true usually is as analysis tells us what seems so simple would actually result in the largest and most costly overhaul of Medicare. And it may potentially undermine key portions of the current coverage that millions of Americans depend on for their healthcare security.
A recently released report entitled the fiscal costs of Medicare at 60 takes a deep dive into what this under 65s plan would mean for current and future Medicare beneficiaries. It also exposes the many questions policymakers still have not answered about the plan, including how to pay for the estimated price tag of close to $400 billion. Here to give us the full picture is one of the reports authors and someone you’ve likely seen during his numerous national TV appearances, Director of Domestic Policy Studies at Stanford University and fellow at the Hoover Institute, Dr. Lanhee Chen. Lanhee, thanks so much for being with us today.
Dr. Lanhee Chen (01:36):
Thanks Chip for having me. I appreciate it.
Chip Kahn (01:38):
Lanhee to get started, would you give us a sense for your background? You have so much policy and research expertise. Can you give us your career highlights?
Dr. Lanhee Chen (01:50):
Well, sure Chip. So I have been focused on research and analysis and advising on fiscal policy issues for some time in particular on healthcare issues and have advised a number of policymakers and candidates for the presidency over the years, I served as the chief policy advisor to Mitt Romney when he ran for president in 2012 and have also advised four other presidential campaigns, I served in a senior role at the U.S. department of health and human services during the George W. Bush administration looking at amongst other things issues affecting insurance in our healthcare system.
And I’ve also been an advisory board member on the Social Security advisory board, which advises Congress and the president and the commissioner of social security on issues relating to the Social Security and disability programs. So I’ve got a long history in looking at and researching and coming to policy advisory conclusions on a whole host of fiscal issues, many of which are in the healthcare space. And I’m currently, as you noted a faculty member in the public policy program at Stanford University and also a fellow at the Hoover institution, which is a research Institute on campus at Stanford. So have done a lot of work on the issues that are contained in the report we’re going to discuss.
Chip Kahn (03:08):
Thanks. That’s great for getting us started Lanhee. To set the context for our Medicare discussion, let’s talk about the healthcare coverage framework in this country that most of us depend on and how Medicare fits into that mosaic.
Dr. Lanhee Chen (03:23):
Well, Medicare is a very important part of, as you call it the mosaic of coverage in our country. We have a unique healthcare system ship in the United States, unique in terms of how much of a role our employer community plays in our healthcare system. The vast majority of Americans have had, or have coverage through their employers. And those employers are of all sorts of different sizes. You have very large employers, you have mid-size employers and you even have some small employers that offer healthcare benefits. And so the employer sponsored piece is particularly important for people who are of working age and younger Americans.
And then you have the Medicare program, which is crucially important for those who are over the age of 65, by and large, the Medicare program also incorporates some people who are disabled and also has interactions with another program called Medicaid, which is targeted at lower income Americans which was originally actually focused on a single moms and their kids. And the program has grown over the years, including a significant expansion in the Affordable Care act, such that Medicaid actually incorporates in fact, more people than Medicare now in terms of the folks who were covered in it.
And then there are a host of other different programs that cover, for example, people who are active military, et cetera. So we have a system in the U.S. that really is a public private system with strong, obviously private sector influences. And I think that is one of the things that has allowed our healthcare system to excel quite frankly, to be the most innovative I’d argue in the world and for us to have really good outcomes in many ways, it’s not a perfect system, of course, as Chip as you know and our listeners of this will know, but it is a system that I think by and large performs well for the hundreds of millions of Americans who access the healthcare system every year.
Chip Kahn (05:21):
Moving on to the democratic proposal, to lower eligibility for Medicare, how are Americans between 60 and 64 covered today in this framework you’ve described? And how do you assume in your study they would be affected by the change in the proposal?
Dr. Lanhee Chen (05:40):
So what we do in our study is to look at the population of people who are in that category of 60 to 64 years old, who don’t already have Medicare, right? And I mentioned there are some small percentage of Medicare beneficiaries who are not over 65. So we tried to look at the population specifically of people who do not have current Medicare coverage. And we find that there’s about 18 million, 60 to 64 year olds who fall into that category. And I’m going to call that population for purposes of our conversation, the Medicare at 60 eligible population. And so we went and looked and said, okay, what is actually going on with those 18 million people? And we found that about 10% of them are uninsured. So about 1.8 million do not currently have insurance. And then in fact, the broad majority of them either have access to current employer coverage or former employer coverage.
So that picks up about let’s call it over almost 65% of that Medicare at 60 eligible population has employer coverage. And then the remainder by and large, about 23, 24% either have coverage through Medicaid. As I noted earlier through the military healthcare programs or through the marketplaces that were set up by the Affordable Care Act. So if you look at that 18 million people, actually, it’s only about 10% Chip, about 1.8 million who don’t currently have insurance. The vast majority, as I noted already have some kind of insurance arrangements. And by and large, the folks who have those arrangements are probably pretty happy with them.
Chip Kahn (07:20):
You project though that millions will join Medicare. If this goes forward, what were your key assumptions that we need to know to understand that approach that you took in your analysis?
Dr. Lanhee Chen (07:34):
What essentially we do is to say, listen, people are rational actors. They’re going to make decisions based on the factors before them, the various costs involved, but more importantly employers, and those who provide coverage are also going to make decisions based on what is before them. And what we find is that you are going to have a number of factors that promote people transitioning to coverage under Medicare if in fact, the Medicare eligibility age is lower. Now there’s a number of different factors Chip that can influence how many people come over and the factors involved in coming over. And that’s part of the challenge that we’re finding with this Medicare at 60 proposal is because it is so not detailed because there are so many questions left unanswered. It’s very difficult to answer some of the technical questions. And so you have to make some assumptions about, for example, issues involving there are usually penalties for late enrollment in Medicare.
How would those be handled if someone did not take up coverage, let’s say between 60 and 64, and then wanted to get coverage when they were normally eligible for Medicare at 65. Also, questions about the interactive effects between the Medicare at 60 proposal. And for example, the Affordable Care Act exchange plans and any subsidies that are provided via the Affordable Care Act. These kinds of interactive questions, I know they seem relatively technical and certainly can read the report for folks who are curious about some of the other questions that we looked at, but these questions actually fundamentally impact how the program will operate. And unfortunately, as I noted, really whether it’s president Biden’s budget proposal, where he talks about this program, or a number of congressional members of Congress who have talked about support for this program, they really haven’t taken the time and effort to sit down and define the answers to these very, very important design questions.
And I think those will fundamentally impact the decisions that people make in terms of where they go and how they end up enrolling in coverage or not. But you’re right, that we actually look at a lot of different factors. And what we determine is that you end up with about 18 million people in all who switch from their current coverage, or who go from being uninsured to joining the Medicare program. And we break that down by the different parts of Medicare, as some of your listeners may be familiar with. There are different parts of Medicare that cover different things. Part A, of Medicare by and large covers hospitalization, part B covers outpatient medical services and part D coverage prescription drugs. And what we find is that you get about 14 million people who take up part A and about 18 million people who take up some form of Medicare coverage period. So it would be a fairly let’s call that disruptive program. The sense that a lot of people would transition over to being on Medicare if early eligibility were to be made reality.
Chip Kahn (10:43):
Yeah, it really is a huge number that you come up with much bigger than that smaller cohort that’s uninsured currently. What do these numbers tell you about the potential impact on the current coverage framework generally, if we did put in place this under 65 scheme?
Dr. Lanhee Chen (11:03):
Well, what you would see of course, is a shift as you note, and as I mentioned earlier, I suppose that we should consider the positives as well. The positive of course, is that those who are uninsured, the 10% of the total Medicare at 60 eligible population, that 1.8 million would have access to some form of coverage. But the other side of this is the significant potential disruption in coverage arrangements for those who have existing employer sponsored, or from their former employer, some form of existing health insurance.
And it is possible, entirely possible. In fact, likely as we model that those people would end up finding themselves in a different form of coverage. And so I think it’s important to know that while there would be some segment of the population that would gain coverage, significantly greater number of individuals would shift over from their existing coverage. As we know coverage, for example, let’s just take about eight million people, for example, who were in that eligible population, who get their coverage from employers with more than 20 employees, that group would certainly see displacement into the Medicare program and would therefore obviously expand the number of people who would be in the Medicare program overall.
Chip Kahn (12:21):
This is unfortunate because as good as Medicare is in terms of the coverage for the over 65s, the benefits aren’t necessarily as good or comprehensive as the benefits that are offered in some private plans, most employer plans actually. So that means that some of your population, I think, would end up with coverage that you could almost characterize as inferior yet they’d still probably either be forced or still migrate over.
Dr. Lanhee Chen (12:52):
Well, here’s the bigger challenge as I see it Chip, which is that, Americans who get their coverage through their employers or former employers in some cases are by and large, pretty darn satisfied with that coverage. And we’ve seen the political danger that comes for politicians who make promises about allowing people to stay on their coverage. But in fact, not following through on that. President Obama kind of learned that lesson the hard way. And I think the challenge with this kind of program… And we can get into a discussion about the relative merits of employer coverage versus Medicare. And I think that’s a healthy conversation to be had, but I think the fundamental problem is that what people don’t realize is the degree to which something that sounds so innocuous.
Well, let’s just open up Medicare and have more people be able to get on it. Actually has significant impacts for the kind of coverage and the nature of coverage arrangements that people who have existing coverage get. And therefore, this notion that if you like your plan, you can keep it. That may not actually be true if this Medicare at 60 program becomes reality, it’s important in policy. And you know this well Chip to consider not just the intended effects, but the unintended effects as well. And that’s really what I’m concerned about. And our analysis really bears that out.
Chip Kahn (14:16):
Well, thinking about unintended effects in terms of your findings and conclusions, what are the key questions do you think policymakers need to answer to make Medicare at 60 a robust coherent policy, at least on paper, or at least in terms of providing the wherewithal for a good debate between those who would be for it and against it? Because I’m not sure they’ve answered those questions yet. What other questions do you think needs to be posed?
Dr. Lanhee Chen (14:44):
Yeah, I mean, one of the things that we haven’t talked about this yet, but there are significant budget effects. There are significant fiscal impacts of expanding eligibility to Medicare. And I think one of the questions that I know this is not popular to ask in Washington, but how are you going to pay for this? What are you going to do to offset the cost of this program? So we find, for example, that the transition to Medicare at 60 would increase the 2022 deficit, our deficit this year by about $30 billion. And we find that in the long run those deficit effects are even more substantial. In fact, what we would see is ten-year deficits rising by about $400 billion over 10 years, and total Medicare spending rising by almost a trillion dollars over 10 years. And so the question then becomes, “Okay, how are you going to help ensure that the so-called hospital insurance trust fund, which is what our payroll taxes go toward to help finance the Medicare program? How are you going to ensure that that trust fund stay solvent?”
Now that trust fund is already under some fiscal duress. We know based on estimates from the nonpartisan neutral congressional budget office, that the hospital insurance trust fund is going to exhaust in 2026. And what we find is that if you lower the eligibility age to 60, that’s going to accelerate insolvency of the fund to 2024. In order to offset that, policymakers have some really tough decisions to make. Are they going to increase payroll taxes? Are they going to increase just the additional surtax on Medicare that was created by Obamacare that’s targeted at higher income Americans? Or as the Biden administration has suggested, are they going to decouple the source of financing of the hospital insurance trust fund, this dedicated payroll tax we pay? Are they going to decouple that and essentially allow the health hospital insurance trust fund to be funded by what we would consider general revenues, thereby severing this long lasting tie between our payroll tax proceeds and the hospital insurance trust fund.
That is something that we generally derive some comfort from, even though it’s an accounting matter, we derive some comfort from the notion that we pay a payroll tax, and that is dedicated and earmarked for Medicare. The Biden Administration has suggested, “Well, maybe we will get rid of that long lasting tie.” These are all the kinds of questions on the fiscal side that have to be answered. How are you going to pay for it? Because I’ll tell you something, Chip. Americans are not going to stand for the notion that you’re going to allow the hospital insurance trust fund and Medicare to basically go bankrupt. And unfortunately this program would place additional strain. And the basic question that no advocate for this has answered yet is, “Well, how are you going to pay for it?” And I think that’s a very important question amongst the others I noted earlier that are more fundamental design issues.
Chip Kahn (17:55):
Along those lines, do you see an analog between the issues raised by this expansion of Medicare full coverage to Americans who now have private coverage and what we see right now regarding a debate over unemployment insurance, where in the quick depression caused by COVID, I think very appropriately, we significantly enhanced payments, but now with those enhanced payments in economic recovery, we almost see government pitted against employers in attracting workers back into the workforce. Do you see anything there that shed some light on this Medicare debate?
Dr. Lanhee Chen (18:35):
Well again, it goes back to this unintended consequences’ discussion we had. And I think you’re correct that when we were in the depths of our economic slowdown, that was created by COVID and the COVID shutdowns, government appropriately responded to ensure that those who needed help got it. What happened over time though, is that those policy decisions and continuing to allow certain policies to continue ended up creating certain incentives and certain disincentives. In the case of unemployment insurance, it had a direct impact on work and the likelihood of labor returning to work. In the case of Medicare at 60, again what we have to realize, you described it so well earlier Chip, when you called it a mosaic, when you think about our healthcare system, everything has an interrelationship and you can’t just say, “Oh, well, we’re going to take this program and expand it.” And not expect there to be some impact on some other part of the healthcare system, right?
That’s not reality. That’s not how things work. So we have to be very cautious of policymakers who are selling something that sounds too good to be true. It sounds too easy. And in this case, the basic point of the study, and by the way, all of our assumptions, all of our data is all publicly available and transparent, and people can go and replicate it and do things that researchers do to determine if they agree with our conclusions. But I’m pretty sure they’re going to agree with our conclusion, which is that in this case, the unintended consequences, you’re going to have a lot of people shifting off of their existing coverage to new coverage arrangements that they may not like as much. And I think that is an important part of this, that we have to have an educated debate and discussion about. Otherwise, it’s going to be very hard for us to have a robust public policy discussion that’s going to properly inform this debate.
Chip Kahn (20:31):
Thank you, Lanhee. This was just such an enlightening and an insightful discussion, and I hope it helps people understand the issues better in this important public policy discussion that we’re now having around potentially Medicare. And we just appreciate you being with us. Thank you for being with our podcast today.
Dr. Lanhee Chen (20:54):
Well, thank you Chip. For more information about this research and the research we’ve done, as well as additional research on healthcare and conversation on those issues. You can follow me on Twitter at Lanhee Chen that’s at L-A-N H-E-E C-H-E-N.
Speaker 1 (21:14):
Thanks for listening to Hospitals In Focus from the Federation of American Hospitals. Learn more at fah.org. Follow the Federation on social media at FAH Hospitals and follow Chip at Chip Kahn. Please rate, review, and subscribe to Hospitals In Focus. Join us next time for more in-depth conversations with healthcare leaders.
Lanhee J. Chen, Ph.D. is the David and Diane Steffy Fellow in American Public Policy Studies at the Hoover Institution; Director of Domestic Policy Studies and Lecturer in the Public Policy Program at Stanford University; and an affiliate of Center on Democracy, Development and the Rule of Law at Stanford’s Freeman Spogli Institute.
A veteran of several high-profile political campaigns, Chen has worked in government, the private sector, and academia.
Chen has worked on four presidential campaigns, including as the policy director of Romney-Ryan 2012. In addition to serving as Governor Mitt Romney’s chief policy adviser, he was also a senior strategist on the campaign. Chen advised Florida Senator Marco Rubio’s 2016 bid; was the Domestic Policy Director of Romney’s 2008 effort; and a health policy adviser to the Bush-Cheney reelection campaign in 2004. In the 2014 and 2018 campaign cycles, he was the Senior Adviser on Policy to the National Republican Senatorial Committee (NRSC). In 2015, Chen was honored as one of the POLITICO 50, a list of the “thinkers, doers, and visionaries transforming American politics” and in 2012 was named one of POLITICO’s “50 Politicos to Watch.”
Chen previously served as a presidentially-appointed and Senate-confirmed member of the Social Security Advisory Board and during the George W. Bush Administration was a senior official at the U.S. Department of Health and Human Services.
In addition to his academic appointments, Chen is a Senior Counselor at the Brunswick Group, a global business advisory firm; a Strategic Advisor at New Road Capital Partners, a private equity fund; and Chair of the Board of Directors at El Camino Health, a network of health care providers in Northern California.
Chen is a regular contributor for CNN Opinion, and his writings have appeared in a variety of outlets, including The Wall Street Journal, The New York Times and The Washington Post. He has provided political analysis and commentary on every major television network and is a regular guest on the nation’s top news programs. Chen is also a member of the Editorial Board for the Salem Media Group.
Chen serves in a variety of nonprofit leadership roles. He is a Director of the Foundation for Research on Equal Opportunity (FREOPP), a Director of the Healthcare Consumer Rights Foundation, and a member of the Committee of 100, an organization of prominent Chinese Americans.
He earned his Ph.D. in Political Science, A.M. in Political Science, J.D. cum laude, and A.B. magna cum laude in Government, all from Harvard University.