More Employed Seniors Could Extend Medicare Solvency, Says RAND

Last spring, the predictions by the Medicare trustees were dire: the Medicare Hospital Insurance Fund (Part A) would likely run out by 2017—two years earlier than previously predicted.

However, a new analysis by RAND economists says delayed retirements by older individuals actually could move this date more than a decade into the future.

By the end of 2008, more than 45 million individuals were covered by Medicare—a number of that is expected to grow quickly as more Baby Boomers begin to become retirees. But one factor excluded from this group is the number of individuals who could retire, but for whatever reason choose to continue to work full-time and receive employer healthcare coverage.

RAND economists Nicole Maestas and Julie Zissimopoulos, writing in the winter issue of the Journal of Economic Perspectives, say that a sharp and unprecedented increase in the number of older Americans who delay retirement could continue over the next two decades. This trend could help ease the financial challenges facing both Medicare and Social Security.

"What we're seeing is changes throughout the older age range. If the trends continue as they have—and we think there's every reason that they will—then you're looking at two potential sources of 'savings' from two channels," Maestas tells HealthLeaders Media.

In one respect, the longer the seniors work, the more they will pay into Medicare. "That's one effect that has to be accounted for," Maestas says.

In addition, many of these potential retirees are deciding to continue to work full-time past their traditional retirement age of 65. Or others are selecting to take on a full-time new second career.

"They're also working longer on a job that [may offer] employer health insurance. So when they now turn 65, Medicare—if employer insurance is available—becomes a secondary payer," Maestas says. "That's another source of savings."

After declining over more than a century, the number of older Americans in the workforce began to rise modestly during the 1990s. While about 17% of Americans aged 65 to 75 were employed in 1990, the proportion is expected now to rise to 25% in 2010. More people aged 75 and older are also remaining on the job.

Overall, more older Americans are extending their work lives because they want more income and because their improved health allows a longer work life, says Maestas. The current trends to delay retirement or re-enter the workforce are strong enough to propel the current trend forward until at least 2030.

In their study, the researchers conclude that lawmakers may want to consider policies that provide further aid to older Americans who wish to delay retirement. These measures include eliminating measures in various pension plans that might penalize those who continue working and improving the public's understanding of retirement and pension rules.