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.

Matthew Rae and Juliette Cubanski are with KFF. Anthony Damico is an independent consultant.

This work was supported in part by Arnold Ventures. We value our funders. KFF maintains full editorial control over all of its policy analysis, polling, and journalism activities

Data and Methods
Large employer plans: We analyzed a sample of medical claims obtained from the 2018 IBM Health Analytics MarketScan Commercial Claims and Encounters Database, which contains claims information provided by large employer plans. We only included claims for people under the age of 65. This analysis used claims for almost 18 million people representing about 22% of the 82 million people in the large group market in 2018. Weights were applied to match counts in the Current Population Survey for enrollees at firms of a thousand or more workers by sex, age and state. Weights were trimmed at eight times the interquartile range. Costs include both amounts paid by enrollees in the form of cost-sharing and spending by the plan. These data reflect cost sharing incurred under the benefit plan, but do not include balance-billing payments that beneficiaries may make to health care providers for out-of-network services or out-of-pocket payments for non-covered services. In addition, total health spending includes spending on retail prescription drugs, and is not reduced by the amount of any rebates that a plan may receive.

Medicare: We analyzed 2018 claims from a 20% sample of Medicare beneficiaries from the Centers for Medicare & Medicaid Services Chronic Conditions Data Warehouse. The analysis includes 25.4 million traditional Medicare beneficiaries only, excluding beneficiaries enrolled in Medicare Advantage plans (for whom claims data are not available), beneficiaries who originally qualified for Medicare due to having end-stage renal disease or a long-term disability, and beneficiaries who were not enrolled in both Part A and Part B for each month of enrollment during 2018. Claims include spending on health care services covered by Medicare and exclude non-covered services. Total health spending reflects payments by Medicare and beneficiary liability, and includes spending on retail prescription drugs, which is not reduced by the amount of any rebates that a plan may receive.

To derive estimates of average monthly per capita spending for each age cohort, we calculated the sum total of spending for each month of enrollment for all beneficiaries included in the cohort and the sum of the number of months those beneficiaries were enrolled, and divided the sum total spending by the sum total number of months.

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