How a Change to Medicare Services Could Impact National Healthcare Spending

If policy makers made changes to the spending, volume, and price to traditional Medicare services, there would be a significant causal effect on national healthcare spending, a new study finds.

Policy makers have long advocated raising the Medicare eligibility age from the current 65 years to 67 years in order to slow the growth of Medicare spending. It would invariably delay entry into Medicare and increase the time beneficiaries are covered by private insurance. However, there haven’t been any specific studies dedicated to understanding the impact of such a policy change to national healthcare spending (the total of all healthcare spending by consumers, payers and governments).

Lead authors Jacob Wallace and Zirui Song, MD, PhD, examined how spending differed between Medicare and private insurance for a national cohort of individuals who switched from private insurance to Medicare at age 65. They found that increasing the Medicare eligibility age may raise national healthcare spending by replacing Medicare coverage with private insurance, which pays higher provider prices than Medicare does. The findings are published in Health Affairs.

Healthcare Spending in Medicare vs Private Insurance

Using the Truven Health Analytics’ 2007-2013 Medicare and Commercial Claims and Encounters database, the authors acquired data on 200,870 individuals related to claims, enrollment information, benefit design, and cost sharing. Only retired individuals were included, so as to eliminate any employer-sponsored insurance as primary coverage.

The most obvious observation was that when individuals shifted from private insurance to Medicare, their healthcare spending was drastically cut down by 32%. Previous studies have found that providers’ prices are lower in Medicare than in private insurance. However, Wallace and Song found no evidence that these prices reduced healthcare utilization. They believe that providers are willing to see Medicare patients at lower rates is Medicare’s purchasing power as a large insurer.

In terms of national healthcare spending, the Congressional Budget Office (CBO) has projected that a major chunk of people would lose Medicare coverage if the eligibility age to be covered by private insurance were increased. The study suggested that between ages 65 and 67, national healthcare services would increase by roughly 30% for the selected services. However, this increase would be because healthcare providers would be reimbursed by private insurers at negotiated prices that are higher than what Medicare would pay.

Increasing the Medicare eligibility age would affect government spending, too. The CBO estimated that if the eligibility age were to be increased to 67, Medicare spending would be $17.1 billion lower than projected in 2023. Furthermore, by 2038 Medicare spending would be 3% lower than projected, thereby decreasing its share of the gross domestic product from 4.9% to 4.7%.

Medicare’s Impact on Healthcare Spending

If individuals switched from private insurance to Medicare at age 65, there would be a large drop in spending driven by lower provider prices, which may be reflective of Medicare’s purchasing power as a large insurer. Increasing the Medicare eligibility age may also raise national healthcare spending by replacing Medicare coverage with private insurance, which pays higher provider prices than Medicare does.