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According to a new report from the Congressional Budget Office, one of the most frequently pushed plans to reduce the federal budget deficit would barely yield any actual savings at all.

This month, the CBO revised its estimate of the budgetary effects of raising the Medicare eligibility age from 65 to 67. While the CBO had estimated in 2012 that raising the eligibility age would save the federal government $113 billion over 10 years, it now estimates that the reform would save only $19 billion over the next eight years. That difference of almost $9 billion per year is, of course, massive.

The changed estimate is based on a new analysis of 65- and 66-year-old Americans. As Paul Krugman explains in The New York Times:

The basic reason is selection bias: Many seniors get Medicare before 65 because of disability or specific medical conditions. The ones who have to wait until the headline age are, on average, relatively healthy and hence relatively cheap.

Additionally, many of these seniors are expected to still be working and receiving employer-provided health insurance by the time they become eligible for Medicare, further reducing their cost to the federal government. As a result, the CBO slashed its estimate of how much 65- and 66-year-olds would cost the program by 60 percent compared to its 2012 prediction.

The political impact of the CBO’s new report should be seismic. Republicans have long pushed raising the eligibility age as an element in their plans to further reduce the already plummeting deficit. In 2011, President Obama reportedly agreed to it as part of his ill-fated “grand bargain” with House Republicans, over the strenuous objections of liberals who argued that the plan was horrible economics.

Republicans can safely be expected to propose the reform again in the upcoming budget conference; this time, however, liberals have hard, non-partisan evidence with which to push back.

Photo: joetta@sbcglobal.net via Flickr

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