In the negotiations between the president and House Speaker John Boehner to avoid the so-called fiscal cliff, both sides agree that some reductions must be made in the cost of government entitlement programs. As Medicare has become increasingly more expensive, one idea that has been widely considered to reduce its cost is to phase in a delay of the Medicare eligibility age from 65 until 67.

Employers may want to consider how such a proposal would impact them and their employees and early retirees. Those employers that now provide retiree health benefits to all or some portion of their employee population would certainly incur significant cost increases. Retirees between 65 and 67 who currently would cease to receive primary coverage from their employer as they qualify for Medicare would continue to receive primary employer coverage if they could not qualify for Medicare coverage. Even those employers that do not provide retiree health benefits to some or all of their employees can expect to incur increased costs.

If employees cannot qualify for Medicare coverage until age 67, it is quite likely that many will choose to remain employed until they do qualify (even if they have the ability to purchase insurance privately through federal and state exchanges that are in the process of being established). Therefore, employers will continue to incur the costs of covering these employees. Moreover, employers most probably will incur higher costs for claims with a larger population of older plan participants.