Employer Costs Could Drop 43% with Younger Medicare Eligibility

April 27, 2021 - If the Medicare eligibility threshold dropped to 50 years of age and uptake was universal among those eligible, employer-sponsored health plans could see a 43 percent reduction in their healthcare spending, a recent brief from the Peterson-Kaiser Family Foundation (KFF) Health System Tracker estimated.

“While a shift from employer coverage to Medicare would increase costs to the federal government, total health care spending would likely decrease for 60-64 year olds who move from employer coverage (because Medicare pays providers at a lower rate than private insurers) and for others with employer coverage (due to a smaller and healthier group of enrollees),” the researchers determined.

The researchers used medical claims from the 2018 IBM Health Analytics MarketScan Commercial Claims and Encounters Database as well as microdata from the CDC’s 2019 National Health Interview Survey Sample Adult Questionnaire to explore the possible implications of lowering the age of Medicare eligibility.

Naturally, healthcare spending would drop for employers if the responsibility for covering healthcare costs for employees in a certain age category shifted to the federal government. But how much would employers save?

According to the KFF researchers’ estimates, expanding Medicare coverage to individuals ages 60 to 64 could lead to a 15 percent decrease in employers’ healthcare spending.

The broader the Medicare-eligible category gets, the more employers could save. If the threshold for Medicare eligibility lowered to everyone ages 55 and older, then employers could save 30 percent on healthcare spending. If the threshold became 50 years of age, then employers could see healthcare spending decline by as much as 43 percent.

In large group health plans, as an employee’s age increases the employee’s share of enrollment decreases but her share of healthcare spending increases.

Employees between the ages of 50 and 54 account for nine percent of large group health plan enrollment, ages 55 to 59 amount to eight percent, and 60 to 64-year-olds make up seven percent of enrollment. But the youngest age group contributes 13 percent of spending, the middle group contributes 14 percent, and the eldest group accounts for 15 percent.

These estimates represent the maximum savings possible if all Medicare-eligible individuals switched from their employer-sponsored health plans to Medicare when they reached the appropriate threshold.

However, this is often not the reality, the researchers acknowledged. In practice, approximately two-thirds of seniors who continue working will choose to receive coverage from Medicare—the majority but not all of the Medicare-eligible population.

After reviewing these estimates, the question remains: what would large employers do with these savings if such a policy were to take effect?

The savings could go towards lowering employers’ premiums and, as a result, reducing employees’ premiums or raising employee’s salaries. The burden of healthcare premiums on Medicare beneficiaries is well-documented.

There are potentially less helpful outcomes as well, the researchers noted.

“It is theoretically possible that the savings could be muted if providers increase prices in private insurance plans in response to more people enrolled in Medicare, which pays providers less,” the report stated.

“Researchers have generally found little evidence to support the notion that providers shift cost on to private payers to compensate for lower public payer payment rates, but we do not know the impacts of a proposal of this magnitude.”

Ultimately, savings for large employers and other impacts would depend on newly eligible seniors’ uptake of Medicare instead of employer-sponsored coverage as well as the health status of those who would choose to shift to Medicare.

Congress is currently considering proposals that would allow individuals who are under the age of Medicare eligibility to buy into Medicare coverage in order to increase access to care and affordability.

“A Medicare buy-in is different from what President Biden proposed during the campaign, which was to lower the age at which people could choose to enroll in Medicare,” the researchers explained. “Under either option, some health spending would shift from the private market to taxpayers.”

If Congress chose to enact President Joe Biden’s original recommendation—lowering the age threshold of eligibility for Medicare—it might choose to fund this policy through general revenues instead of the dwindling Hospital Insurance Trust Fund, as the president has suggested.