In 1950, there were 7 people of working age – 20 to 64 – for every person 65 or older. That ratio is currently below 5 and will fall below 3 by 2030. – CBO, 2012
The current age at which someone becomes eligible for Medicare, the federal government’s health insurance program for seniors, is 65. Guess what the age was when Medicare was created in 1966? 65. Though life expectancy has risen by almost 9 years over the ensuing 45 years, the eligibility age hasn’t changed. Similarly, the age at which people can access full Social Security benefits remained the same for the first 65 years of the program’s existence. Between 2000 and 2027, the age is being gradually increased from 65 to 67, but life expectancy continues to increase faster than the eligibility age.
When people live longer but retire at roughly the same age, they spend less of their life working and more of their life collecting Medicare and Social Security benefits, which greatly increases the cost of these entitlement programs. One of the clearest ways to reduce entitlement spending, and avert a long-term deficit crisis, is to raise the age at which people become eligible for benefits. A new analysis by the Congressional Budget Office (CBO) shows that small increases in the retirement age can result in significant savings. The CBO estimates that gradually increasing the Medicare eligibility age by two years, to 67 by 2027, would save $113 billion over the next decade and reduce federal spending on Medicare 5% by 2035. Gradually raising the age at which people are eligible for full Social Security benefits, to 70 by 2043, would save $120 billion over the next decade and reduce federal Social Security spending 4% by 2035 and 13% by 2060.
Raising the age of eligibility for Medicare and Social Security would impact much more than government spending. It would cause people to delay retirement until closer to the time when they can receive benefits, increasing the number of people in the labor force as well as government tax revenues (more workers = more earnings = more taxes). Increasing the age of eligibility for Social Security by three years, for example, would expand the size of the labor force and of total economic output by 1%. Increasing the Medicare eligibility age would also require individuals to seek other health insurance coverage from age 65 to 66 and the CBO estimates that about 5% of those affected would become uninsured.
Social Security and Medicare were created to help individuals too old and too sick to support themselves. As advances in healthcare and life expectancy make 65 the new 55, or even 45, we as a society may have to reconsider what a normal retirement age should be and how much of our government spending we can afford to devote to these programs.
Raising the Ages of Eligibility for Medicare and Social Security
Noah Meyerson and Joyce Manchester // Congressional Budget Office // January 11th, 2012