In which Henry Aaron talks himself into supporting a raised Medicare eligibility age

Henry Aaron of Brookings, one of the nation's top healthcare economists, has a rather odd perspective on the current brewing battle over so-called "entitlement reform." On the one hand, he focuses his concern on the older elderly, with their ever-dwindling purchasing power, which leaves him less hostile to raising the Medicare eligibility age than other left-of-center economists who acknowledge a need to trim benefits. He is more distressed by proposals to trim cost-of-living increases, e.g. the so-called chained CPU, which seem to strike most observers as a milder, more gradual mode of trimming benefits. Indeed, in the fullness of time, when the ACA is fully up and running and providing affordable care to the uninsured, Aaron favors raising the Medicare eligibility age to expand the ratio of working to retired adults.

On another front, Aaron at once provides historical and comparative data to demonstrate that U.S. senior health and pension benefits are unduly skimpy, and effectively concedes that given our political culture, we need to plan how best to make them skimpier still. He suggests that only by agreeing to benefit cuts can Democrats forestall more radical proposals to shred the safety net, e.g. via private accounts for social security or voucherization of Medicare. At the same time, he argues for benefits that increase with age, with offsets for lower-income younger elderly for whom raised retirement ages are a burden, and for a variety of formulas to shift costs onto the wealthier elderly (his Medicare reforms look something like those proposed by Senators Lieberman and Coburn: providing catastrophic insurance but ending Medigap as we know it, and making the wealthy elderly pay a much higher percentage of the actuarial value of their coverage).

I find it odd that Aaron argues, in effect, for preemptive concessions -- proposing policy choices he regards as less than optimal as a means of forestalling more radical, Paul Ryanesque attacks on safety net programs: 

while reports of a crisis are overblown, and conservative proposals to solve it are draconian, progressives do need to think about how best to reform the entitlement programs. The simple fact is that Social Security, Medicare, and Medicaid form a very large and growing part of the federal budget—currently 50 percent of noninterest spending. Furthermore, the phrase “entitlement crisis” has been repeated so often and so earnestly that denying its reality is more likely to damage one’s own credibility than to dislodge what is actually profound confusion. Cuts in Social Security, Medicare, and Medicaid benefits are neither necessary nor desirable and should be resisted, even as reform of the whole health-care delivery system proceeds. But political and economic realities—the need to secure majority support for measures to lower deficits once economic recovery is well advanced—make some cuts highly likely. It behooves supporters of social insurance to have in reserve program cuts that would do the least harm and might advance other meritorious objectives. To begin this search, one should start with the underlying economic and demographic forces that are driving spending. 

Because a misleading phrase has become accepted wisdom, those who know better should accede to the confusion it's caused?  Yes:

For several decades support for the legislative landmarks of the New Deal, the Fair Deal, and the Great Society seemed impregnable, both in the general public and among political elites. Public affection for Social Security and Medicare remains deep and broad. But budget deficits and specific projections for Social Security and Medicare have created a widespread, if misguided, sense that we just can’t go on without retrenchment.

The first line of defense should be to defend the importance of these programs and others that comprise the social safety net, and to show that they can be sustained without unduly high tax burdens. But failure to plan for what to do if some ground must be given would be an abdication of responsibility.

 For supporters of social insurance, not to make such plans would leave to those programs’ critics and enemies the job of designing changes that may prove inescapable. That is not an outcome that progressives should allow. Nor should progressives deny the very real imperative resulting from a steady increase in longevity: People who can do so should be encouraged to work until later ages than has been common in the past.

As a progressive healthcare economist, Aaron, I imagine, could propose a host of measures designed to reduce healthcare spending in the U.S., bringing it more in line with that of other wealthy countries that spend 50-70% per capita of what we do, without shifting costs to seniors (cf. this trio: letting IPAB make use of outcomes research, promoting end of life counseling, and creating a "strong public option in the healthcare exchanges).  I imagine, too, that like Jonathan Cohn, he has high hopes that cost control measures in the ACA will bend the cost curve -- indeed, he suggests as much, in general terms:

Once upon a time, Medicare paid pretty much whatever price hospitals, doctors, and other providers charged for whatever services they rendered. But no longer. For nearly three-quarters of all enrollees, Medicare now pays a flat fee for treating particular conditions and aggressively regulates service prices. The remaining quarter or so of Medicare enrollees sign up for one of several competing private plans that accept a flat sum for delivering services at least as good as those offered under fee-for-service arrangements.

This is not to suggest that more costs can't be wrung out of the system, in part by shifting them to wealthy seniors.  But I must say, I find Aaron's eagerness to nudge (presumably more affluent) younger elderly into prolonging their participation in the workforce not entirely convincing.

In part, that preference is based on his own research:

In a Brookings Institution study (carried out in collaboration with the Urban Institute and Moody’s Econometrics and sponsored by the Sloan Foundation), Gary Burtless and I find that if labor force participation among workers over age 55 continues to increase at the same rate observed since 1995, rather than at the slower rate of increase projected by the Social Security Administration, cumulative government revenues would rise $2.7 trillion over the next three decades, mostly from income and payroll taxes, and spending would fall about $600 billion, mostly from Medicare and Social Security savings.

Only a small part of those projected savings, at best, would come from raising the Medicare eligibility age, since increased over-55 participation is happening anyway. To further this argument (earlier in the piece), Aaron cites the claims of another economist that strike me as more dubious:

While differences among groups are important, so too are averages. Half of men are out of the labor force by age 64, half of women by age 62. On average in 2008, life expectancy for 20 year olds was an additional 59 years, or to age 79. That would mean that the average American works 42 or 44 years and is retired for 15 or 17 years (though in reality, most people are not in the labor force all the time). Crunch all these statistics together and you find that, on average, people typically spend roughly one-third of their adult lives in retirement if one accounts for time spent out of the labor force for child-bearing, for education after age 20, and in unemployment. If consumption is spread evenly over the adult life cycle, roughly one-third of lifetime consumption will occur in retirement.

Stanford economist John Shoven points out that most people live as couples. That changes the arithmetic. Males usually marry women somewhat younger and who have somewhat longer life expectancies than themselves. Shoven points out that roughly 30 years will elapse, on average, before both members of a couple consisting of a 62-year-old man married to a 60-year-old woman will die. Typically, they will have worked no more than 40 years. Shoven bluntly asserts, “You can’t finance 30-year retirements with 40-year careers without saving behavior that is distinctly un-American.” Whether one uses my arithmetic or Shoven’s starker version, it is surely fair to ask whether people will be willing to divert from current consumption enough to both support ever-lengthening retirements and pay for the rest of what they want government to do.

I am not an economist or a mathematician, so will someone please confirm for me that some sleight-of-hand is at work here?  According to Aaron, the average ratio of work to retirement years for an American adult is 2-to-1.  But because a lot of 60-somethings live in couples, according to Shoven the ratio morphs to 4-to-3?  How does that compute? The longer-living couple member's retirement counts for two?  A thirty-year retirement becomes the norm?  The better half of a majority of couples will live to 90? What am I missing?

There seems to be a meme abroad that acceding to bad policy, like raising the Medicare eligibility age -- which Aaron concedes will raise overall healthcare spending -- will mollify Republicans, blunt the force of their attempts to more deeply undermine core social insurance programs. I can see one practical strand in this line of thought: if some Medicare changes are explicitly tied to the success of the Affordable Care Act (e.g., raising the Medicare eligibility age, or introducing premium support into Medicare), then Republicans will have an incentive to stop trying to strangle the ACA in its crib.  Absent such quid pro quos, however, this logic seems to be another instance of preemptive liberal concession.  In Aaron's case -- in this essay at least --there seems to be an uneasy blend of such concessionitis and a genuine eagerness to "nudge" 65-67 year-olds into remaining in the workforce.