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Expanding Medicare Eligibility Entails Many Design Issues

Proposals to expand Medicare have moved to the forefront of debate, with several expansion plans advanced in policy journals or introduced in Congress. Although they vary in scope, all raise numerous technical and program design issues. In a new issue brief for the National Academy of Social Insurance, I identify the major design challenges involved in expanding Medicare eligibility and outline alternative strategies and considerations for each.

Medicare’s basic eligibility criteria have remained much the same for decades, while the program has evolved considerably in other respects. Ever since Medicare’s start in 1965, older Americans have become eligible for benefits at age 65, which was Social Security’s full retirement age at the time. Seniors are eligible for premium-free Hospital Insurance (HI, or Medicare Part A) if they meet Social Security’s work-history requirement, and they can opt to pay a premium to cover part of the cost of Supplementary Medical Insurance (SMI, or Part B) and the Prescription Drug Benefit (Part D). Policymakers in 1972 extended Medicare eligibility to disabled workers under age 65 (after a two-year waiting period) and to people with end-stage renal disease. Since then, Medicare’s eligibility requirements haven’t changed.

Proposals to expand Medicare eligibility fall into three major categories. Some would reduce its eligibility age — to 62, 55, or 50 — while retaining its financing structure and near-universal reach among the eligible population. Others would let certain people under age 65 “buy in” to Medicare or a similar program upon paying a premium that covered much or all of the cost of benefits. Still others would create a Medicare-like program (sometimes called “Medicare for All”) that would cover everyone and be fully tax-financed.

Any of these proposals could be workable administratively, but all raise significant technical and program design issues, including:

  • Benefits and cost sharing. Many design issues arise from differences between the benefit packages in traditional Medicare and private insurance. Medicare’s unique benefit package creates complications particularly if a buy-in is offered as an option in, or alongside, the Affordable Care Act (ACA) marketplaces.
  • Traditional Medicare and private plans. Medicare beneficiaries may receive their benefits through traditional Medicare or through private Medicare Advantage plans. A proposal to expand eligibility for Medicare could extend eligibility for traditional Medicare, Medicare Advantage, or both.
  • Relation to employer-sponsored health insurance. Some buy-in proposals would give those who are eligible for employment-based coverage the choice to participate, while others would not. Single-payer plans would largely do away with employer coverage.
  • Relation to ACA marketplaces and Medicaid. An expanded Medicare program may be designed as a partial or complete replacement for the ACA marketplaces, an offering inside the marketplaces, or an optional alternative to the marketplaces.
  • Premiums and subsidies. The out-of-pocket cost of health coverage under any proposal to change Medicare eligibility, as well as its attractiveness to potential enrollees, will depend on how unsubsidized premiums are set and the extent of premium and cost-sharing assistance for low- or moderate-income beneficiaries.
  • Participation and continuity of coverage. Medicare’s design assures that participation among seniors is nearly universal and extremely stable. In Medicare buy-in proposals, some of the factors that generated this stability in enrollment may be absent or weaker.
  • Provider payment rates and participation. Expanding Medicare eligibility could reduce health care costs because Medicare’s payment rates are usually lower than rates that private plans pay. How providers would respond to significant decreases in their payment rates and incomes is another key issue.
  • Financing. With the federal government facing large and growing budget deficits, policymakers should offset the cost of any expansion of Medicare eligibility that would otherwise add to deficits.
  • Transition and implementation. Depending on their scope, changes in Medicare eligibility would take time and resources to implement.

Changing Medicare eligibility today is much more complicated than starting from a largely blank slate, as when Medicare began in 1965. Health care spending represents a vastly larger share of the economy, many more people work in the health care sector, more sources of health coverage are available, and any change would likely disadvantage some people (at least in the short run) while helping others. This complexity contributes to the challenges that policymakers must address in designing policy options to expand eligibility for Medicare.