In principle, as Becker shows, increasing the eligibility ages for these costly federal entitlement programs would substantially reduce the federal deficit. But the size of the reduction would depend on the behavioral consequences, a complex and uncertain issue. For example, many people undoubtedly will increase the amount of private health insurance that they carry and also increase their savings for retirement. Most of these additional benefits will probably be provided by employers, resulting in an offsetting reduction in wages. Since fringe benefits receive favorable tax treatment, such a shift reduces federal tax revenues, increasing the federal deficit. Furthermore, more people will apply for social security disability benefits (the effect, if the application is successful, is that the applicant receives social security benefits before he reaches eligibility age) and receive them; in addition, the legal and other administrative expenses of obtaining such benefits are much greater than the expenses of obtaining social security at the age of eligibility.
Other people who lose eligibility if the eligibility age is raised will be able to substitute Medicaid, another costly entitlements program although less generous than Medicare and funded only one-half by the federal government (the other half is funded by the states). And because people between the ages of 65 and 70 are on average healthier than those who are older, the savings to the Medicare program from an increase in the eligibility age will not be proportionate to the number of persons who become ineligible as a result of the increase.
Becker mentions that one impetus to the creation of the social security program back in the 1930s was to create more job opportunities for young people. I think that that is or should be a concern today. In a society in technological flux, like ours, an age-top-heavy work force may be an impediment to economic growth. There is also considerable youth unemployment today. Although this is not the occasion on which to explore the issue of “structural unemployment,” I think it is at least arguable that automation, outsourcing, international competition, and changes in management practices may be shrinking the labor market. The more competition in labor markets the better for the economy, but the age discrimination laws shield older workers, to an extent anyway, from the competition of younger ones. (When I say “older” I have in mind not middle-aged men and women, but people in their late sixties who would be incentivized by the increase in eligibility ages to retire later.
Another problem with obtaining substantial economies from increasing eligibility ages is that of the phase-in period for the increases. In order not to upset people’s expectations (upon which many of their employment, savings, and insurance decisions may have been based) too drastically, proposals for increasing the eligibility ages for social security and Medicare invariably provide for a gradual phase-in of the higher eligibility ages. The phase-in for increasing the eligibility age for full social security benefits from 65 to 67, a change in law that was enacted in 1983, spans the period 2000 to 2022—thus taking 39 years from enactment to completion, with no changes in the first 17 years. A faster track to a lower deficit would be a reduction in social security and Medicare benefits immediately for affluent persons.
Unless the phase-in period is enormously long, in which event increasing eligibility ages would not be considered worthwhile, increasing those ages is unlikely to be politically feasible. Middle-aged people will think they are being “forced” to work at a time of their life when they will be “entitled” to be enjoying retirement. That is, people expect life to get better over time. Raising eligibility ages, especially for Medicare, because it is so generously open-ended, will be widely interpreted as telling people that life is not going to get better over time—because most elderly people don’t want to work.
Despite the problems I have emphasized, raising the eligibility ages for social security and Medicare deserves serious consideration. But perhaps equal or greater emphasis should be given to other ways of reducing the cost of these entitlement programs, such as measures, comparable those of employers and health insurance companies, to increase the incentives of hospitals and doctors that provide Medicare services to economize, as by eliminating redundant treatments and excessive screening for low-probability health problems. The Affordable Health Act tries to do this, and in addition the reduction in Medicare reimbursement that the Act mandates will put pressure on the providers to economize.