How Would Lowering the Medicare Age Change Unemployment?

Great Debates
1

Being neither American nor old, I have to wonder what the connection is between Medicare and unemployment.

First thing I’m unclear on is what would be the marginal cost of moving the Medicare age from 65 to 64, then to 63? (ignoring for a moment the exception for certain medical conditions)

This concept popped into my head a few years ago when I was talking with a woman at work who kept bitching about how old she was and how badly she wanted to retire. Her and her husband had saved heavily throughout their life intending to retire at 55 and enjoy the golden years.

Problem was that they both had health issues and needed their company health policy until they could qualify for Medicare. In the mean time, her company had been waiting for her to retire so they could replace her with one of the younger employees that they had hired on as part-time. Meanwhile, he can’t get full-time or benefits until she leaves, and she’s not leaving until she can get Medicare. This story isn’t meant to count as data, merely a reference point for what I’m talking about.

The issue I see is that even the most responsible person 40 years ago would never have been able to plan for a retirement that also included the modern day cost of health care in the US. So instead of leaving the work force at 55 the way they budgeted for, they are stuck occupying a job they neither want nor need, in order to keep their health coverage.

So for debate: I propose we examine the margins involved (as opposed to the moral/legal implications).
*What would be the cost increase for Medicare going from 65 -> 64.
*Can we get a sense of how many people aged 63/64 are currently in the work force.

Next, if we make the assumption that this plan would get everyone 63/64 to retire, what would that to on the other end of the spectrum as new grads are looking for job openings.
*What costs do we incur when recent grads aren’t able to find jobs?
*If this worked, what is the marginal cost of unemployment going from 9% to 8%?

This isn’t to suggest that new grads are taking senior level positions. The assumption here is that in steady-state when a senior level engineer retires, everyone moves up the ladder and one of the summer interns gets hired full time.

[I recognize that isn’t a universal truth, and that’s it is entirely possible the position will be left unfilled, but even if that’s the case, it means one less position to be laid off.]

As a thought experiment, stripping away a lot of the unnecessary externalities, how would a back of a napkin analysis play out?

2

If memory serves me right,Medicare was designed to add groups of people until it became universal. I believe it was in 5 year increments.

3

People didn’t have to plan for retirement 40 years ago; they all expected they’d have pensions. Companies like Ford have effectively been passing on the cost of doing business to themselves, 30 years on.

By offering defined benefit retirement plans, and then not really bothering to fund them, they were able to massively lower the cost of labor in the short term (since they could pay workers less), and now both the employers and the employees are reaping what management (and probably to a lesser extent union leaders) sowed.

We’re now in the process of moving into the next era of retirement- the one where everyone is basically on their own. 401(k)s aren’t going to create the same type of problems in 40 years that defined benefit plans are now.

Granted, they might have entirely new problems, but those will be up to the individual to work out.

So, anyway, the point is it’s impossible to say what your plan will do in the long term, other than massively increase the cost of Medicare.

4

No, not all people had pensions 40 years ago. There were still lots of people working for companies (or for themselved) that didn’t offer pension plans. My parents didn’t have pension plans; my grandfathers didn’t have pension plans. Then again, none of them worked for Ford either.

5

Sorry. I didn’t mean to imply that everyone had one, just that people who worked for the multinationals which were the engines of economic growth for most of the last half century did.

6

Let’s let cites serve instead of your memory, if you don’t mind providing one.

7

I am unaware of a formal connection/thesis between unemployment and Medicare. If, however, what you say is true, that many people take a job just for the benefits, then, yes, there is a relationship – the magnitude of which will depend on the data.

Like I said, I am unaware of such a connection, so my guess is that it would be little. To be competitive in this day and age, one needs special skills, and most likely an education. A person in his 60’s, and still working at a job with as good as benefits to pay for common old people problems is likely have a very good job, and more than likely to be in upper management, and hard to replace anyway. Jobs back then, especially for large companies, had some sort of special retirement benefit that includes insurance (my mom parents each have their old insurance when they retired, my aunt still has hers from the Bell Company).

Those without special skills or higher education will find it extremely difficult to be working at a job with good benefits (unless union, which would then entail that the was the only job that person ever had). Staying long at a place doesn’t necessarily give one any additional benefits, unless a higher skilled employee (and that appears to be a falling trend), even with a union.

My guess: more than not, the current crop of employees already have a defined benefit to keep the insured (for the most part, may or may not be supplementing with Medicare), so lowering the retirement age a little bit will do little to effect unemployment. However, those workers now without pensions or defined benefits (which I am sure is a much greater number now) will more likely be inclined to keep working for the benefits, so these people staying in the workforce is more likely to affect the employment rate.

8

I managed to find a study from 2003 that looked into some of this: "Reducing the automatic eligibility age to 62 would cost the Medicare program about $5.4 billion per year (in 2000 dollars). "
http://www.urban.org/publications/410902.html

I don’t know how many people that includes, I’m going to try and find out.

Census data is hard to find on that specific age group, in 2007 for example:
31.5 million Americans were between 55 and 64, with 19.5 million in the work force

One problem to note is that after age sixty-fix 5.4million Americans stay in the workforce (2007 figures). This group needs to be removed from the previous number since to me they represent people that are working for reasons other than Medicare eligibility.

So we can make the rough assumption that there are 14million people in the workforce that *could potentially retire *if they had access to Medicare.

http://factfinder.census.gov/servlet/STTable?_bm=y&-geo_id=01000US&-qr_name=ACS_2007_3YR_G00_S2301&-ds_name=ACS_2007_3YR_G00_&-_lang=en&-redoLog=false

According to this site

"Unemployed Americans have collected $319 billion in jobless benefits over the past three years due to the federal government’s unprecedented response to the Great Recession, according to a CNNMoney analysis of federal records. "

That’s over $100billion per year, for what seems to cover only:
“Some 8.5 million people are collecting unemployment insurance, including 4.8 million receiving federal benefits.”

When I still need to know is:

  1. how many people did that $5.4billion included so that we can expand it to include 14million
  2. what is the current cost of having 14million unemployed.
9

This is grossly oversimplified, but let’s just use it for discussion.

There are 46.6 million people receiving Medicare. The average annual cost is about $7,500 per enrolee.

Assume that we move 14 million people on to Medicare. Also assume that they are healthier than the typical current recipient. Let’s say they cost $5,000 per person per year instead of $7,500. That’s $70 billion, right there.

However, it also means you’ve moved 14 million people from paying into Medicare to collecting from Medicare. Now, if all 14 million of those people had been earning the U.S. per capita income of $39,626 it would mean a loss of the 2.9% Medicare tax receipts, costing the program about $15.6 billion in lost revenue.

Now the cost is actually $85 billion.

$85 billion is enough to employ 2.15 million people at the average per capita income. Assuming unemployment benefits usually are something like 1/3 of the worker’s previous salary, that’s still less than 6.5 million people.

10

Keep in mind, that’s the point, since it’s unlikely anyone is going to source our findings in a budget proposal.

I hadn’t thought of that, but I don’t don’t think we need to include it. My reasoning was that the 14million we take out gets replaced 1 for 1 eventually allowing 14million to enter the work force. It’s possible that we’re retiring the highest paid and replacing them with slightly lower paid, but I figured everyone blow them gets a raise as they’re moved up the ladder.

I’m happy with that number, so redirecting this towards the 14million unemployed works out to be about $6,071 per person.

It’s here that I’d ask, how much does unemployment cost us? Is $85billion too much to pay to lower unemployment?

But said another way: If there are 152million people in the work force (65% of 224million), we need to get another $600 a year from each of them, flat off the top. For the average person making $39,626 that would mean having an additional 1.5% income tax.

From this sloppy work, I’d conclude we could allow everyone over 55 to retire and join Medicare for the additional $600 per income per year. To me that seems crazy low.

11

Not that, really. Medicare’s costs are substantially in end-of-life care, iirc. Adding 63- & 64-year-olds doesn’t add that much cost relatively speaking.

12

Either way the answer is the same: show your work (see post 9).

Obviously it will mean an increase in cost for Medicare, and possibly it means a massive increase. I’m curious to see how that increase compares to the cost of having 16million people unemployed, and what that cost looks like when distributed over the 152million people in the work force.

I should note that of the 152million in the workforce, it appears at least 10million are at or below the poverty line, meaning it’s unlikely they’ll contribute $600 per year. But we can address that after we get a first pass through.

13

http://jhppl.dukejournals.org/cgi/content/abstract/32/2/159 Sure ,but why do I have to do the work when i said it was my memory. I have heard it on TV and radio a few times. Do i have to look those up for you ?

14

Yes, for the millionth time you need to back up your statements. All of them. If Medicare was meant to be added incrementally show where that was the initial plan.

15

But few of the 14 million people we’re talking about are JUST working for the insurance. And of those who are, there’s a certain percentage who are working because their spouse doesn’t have insurance, or their kids are still covered under the parent’s insurance. Simply making those people elegible for Medicare won’t affect their decision to work.

And most of those 14 million are working because they need the money. While some of them might be willing/able to reduce their income in exchange for cheaper insurance, they’d still be in the workforce.

Let’s say the 14 million aged 55-64 are equally divided by age; so you have 2.8 million age 63-64. Assume 50% of them would retire tomorrow if they had Medicare. Now you’re talking 1.4 million people. Using my previous figures, the cost to Medicare is $8.5 billion to create 1.4 million jobs. That’s about $6,000 per job.

Of course, that ignores the fact that a great many of those 1.4 miilion retirees would go on Social Security. Even with the reduced benefits, there’s a cost there.

But the biggest problem I see is that it’s a one-time stimulus. Most of those 1.4 million would retire in the next year or two anyway. It doesn’t resolve any of the structural problems that led to the unemployment problem in the first place.

16

I did try to take that into account. Originally there were 19million between 55 and 64, then another 5million older than 65.

My line of reasoning was that the 5million still working represent the number of people that “aren’t ready to retire” such that Medicare isn’t the deciding factor.

The article I read actually pegs the number closer to 7% when looking at those 62-64.

Right. But I think that as they reduce their income, that frees up opportunities for the currently unemployed.

Which is about what we got before, but now it’s only helping 1.4million. And again that’s spread out over the entire work force making it a pretty small per person cost. I might have done this wrong but I think our new total is only $55 per person in the work force! I was then reminded Obama gave $800 as part of the Making Work Pay (or was it $400).

So if each person employed today chips in $55 we can allow 1.4million people to retire freeing up 1.4million potential jobs.

I’m not ready to add social security into the mix just yet. But it makes me wonder: what’s worse paying unemployment or paying someone to retire early?

I’m okay with that for three reasons: It’s a huge freakin stimulus even if it’s paid for through a 1.5% tax (the same increase to pay for a new stadium). It solves two huge problems at once. And I feel like the cause of the recession" was a big one time event (not that it couldn’t happen again).

If all it does is cut the work force by 14million not really worth the trouble.