Raising the Medicare Eligibility Age and Its Implications in the Fiscal Cliff Negotiations

You’d never guess from what you see in the news, but the fiscal cliff negotiations are proceeding on two tracks and there is a deal to be done in the coming weeks.  One track is public: the screeds in the media and parliamentary chicanery on the Hill, all with the goal of proving their ideological purity to their respective bases and beating the crap out of the guys across the aisle.  Speaker Boehner last Friday: “There isn’t a progress report, because there’s no progress to report.”  That piece has been depressing as hell to watch.  Didn’t we do this with disastrous results last August?  The two parties are like little boys with toys.

The other track is private: the horse-trading going on behind closed doors by Boehner and President Obama. There, a deal is coming together.  What we see is a game of chicken between Democrats and Republicans — Dems won’t budge on entitlement cuts and Republicans continue to reject any tax increases on the wealthy — and at some point in the next two weeks, one party will blink.  And the path to a deal is this: raise tax rates a little, giving Democrats a win, but not all the way back to 39.6 percent, giving Republicans a win. They’ll cap some tax deductions as well to generate more revenue.

The bigger question is what Republicans will get on the spending side of the deal. There will be cuts to Medicare — we’re thinking in the neighborhood of $400-500 billion — and the big concession from the Dems is likely to be an increase in the Medicare eligibility age from 65 to 67.  It’s not great policy as it would disproportionately impact minorities and hospitals and wouldn’t actually save much if anything, but it has huge symbolic importance for deficit hawks and Tea Partiers, so it represents an outsize bone for the President to toss in.  That’s why you see Nancy Pelosi screaming it’s a non-starter — they’re making it tastier for the right.

Sarah Kliff from WaPo did a terrific post today on the five biggest implications of an increase in the eligibility age.  She points out that the change would move about 5 million seniors out of Medicare, and back to their employers’ insurance, into the exchanges, or into Medicaid if eligible. A whopper of a finding: “as the federal government saves $5.7 billion in 2014 by spending less on Medicare, (employers and Medicaid) would spend $11.7 billion more providing the same health care benefits.”  Not much of a saver there — but red meat for budget cutters.