Health Spending for 60-64 Year Olds Would Be Lower Under Medicare Than Under Large Employer Plans

Medicare currently offers health insurance coverage to more than 60 million Americans ages 65 and older and younger adults with long-term disabilities. During the presidential campaign, President Biden proposed to lower Medicare’s eligibility age from 65 to 60, along with other policies to address health insurance coverage and affordability. Then-candidate Biden stated that the proposal would not affect Medicare’s Hospital Insurance trust fund or premiums for currently eligible Medicare beneficiaries, but other important policy design features have yet to be specified, including how it would be financed or administered. While many details are unknown, the proposal would potentially allow millions of adults to switch from non-group or employer plans to Medicare.

Lowering the age of Medicare eligibility from 65 to 60 would likely lead to lower revenues for hospitals, physicians, and providers who deliver care to 60-64 year olds. Provider payment rates from private plans tend to be considerably higher than those paid by Medicare; for example, large employer plans pay between 1.6 to 2.5 times more than Medicare for the same type of inpatient admission. Over time, the payment rate differential has been increasing. If private plans paid the same rates as Medicare, their spending would decrease by 41%, or over $350 billion in 2021.

The flipside of lowering provider reimbursement to Medicare payment rates for the 60-64 age cohort is the potential to reduce health care spending for people who shift from large employer plans to Medicare, potentially saving money for people, employers, and the federal government in the form of reduced tax subsidies for employer coverage. In this analysis, we use claims data for covered medical services from both large employer plans and traditional Medicare to illustrate the potential spending effects of using Medicare payment rates in lieu of higher rates paid by employer plans. There may be some differences in plan design and structure between Medicare and private insurance plans, though covered benefits are likely similar. (See Data and Methods for details.)

While health care spending increases with age within a given payer type, our analysis shows substantially higher per person spending among 60-64 year olds in large employer plans than among 65-69 year olds in Medicare, primarily reflecting the differences in payment rates noted above.

• Average health care spending per person per month for enrollees ages 60-64 in large employer plans ($1,061) is 38% higher than average monthly spending for traditional Medicare beneficiaries ages 65-69 ($770) (Figure 1). This comparison understates the savings that could be realized by shifting 60-64 year olds to Medicare, since one would expect 65-69 year olds to have roughly 20-25% higher spending, because health needs rise with age.
• Average monthly health care spending for large employer plan enrollees ages 60-64 is similar to that of traditional Medicare beneficiaries in their early 70s, who tend to use more health care services than people in the younger age cohort.

Our previous analysis of the difference between provider payment rates from private plans and Medicare suggests that the adoption of Medicare payment rates could reduce per enrollee health spending for those aged 55-64 by almost $4,000 dollars per year. This analysis suggests that lowering Medicare’s eligibility age would lower total and per capita health care spending for people who shift from large employer plans to Medicare, thereby generating savings for employers and potentially increasing the affordability of health care for these individuals, while also shifting costs to the federal government associated with coverage for 60-64 year olds. The exact savings possible and the trade-offs involved would on depend many policy details that have yet to be specified.