The Congressional Budget Office (CBO) recently released an issue brief that analyzes the impact of raising the ages of eligibility for the receipt of benefits under Social Security and Medicare. Of course, what is driving this issue is the looming insolvency of the Social Security Trust Funds. As has been reported here previously, the latest trustees’ report, from May 2011, projects that the Old-Age, Survivors, and Disability Insurance (OASDI) trust fund assets will be exhausted in 2036. Increasing the age of eligibility for full or “normal” retirement—currently age 66—is one of many ideas that has been advanced as a way to restore solvency to the trust funds. For example, in its final report, the National Commission on Fiscal Responsibility and Reform recommended in December 2010 that both early and full retirement ages of eligibility for Social Security benefits should be indexed to longevity such that they grow about one month every two years. According to their report, this process would restore about 18% of the long-term 75-year deficit to the Social Security Trust Funds.
What the CBO found
In its recent report, the CBO examined the impact of increasing full retirement age from age 66 to age 70. This increase would ultimately reduce Social Security outlays by about 13%. Raising the early retirement age would have a much smaller impact in the long term. It would delay access to benefits for many people, but their monthly benefit amounts would be higher.
If the Medicare eligibility age were increased from age 65 to age 67, federal spending on Medicare would be reduced by about 5%. A small share of those people would end up without health insurance, but most would have insurance coverage through employers, other government health care programs, or other sources, according to the CBO.
The CBO also estimates that by 2035, outlays for Social Security and Medicare would fall by 0.4% of gross domestic product (GDP) and federal revenues would rise by around a half percent of GDP. This situation would lead to a reduction in the budget deficit of nearly 1% of GDP. By 2060, the federal budget deficit would be reduced by 1.75% of GDP (CBO Issue Brief, 1/2012).