We're about to transfer more public wealth to health insurers.

Ahhhh, now I get it.

Digby has unearthed a key point in the circle jerk about raising tax rates and cutting entitlements. Avik Roy, Forbes blogger and one of Romney's health care advisers, floats the notion that all the talk of raising Medicare eligibility to 67 years is really about working towards the eventual privatization of Medicare.

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Roy says:

"I have to respond to this interesting hyperbole about Medicare death sentence. If you raise the retirement age for Medicare, we have the Affordable Care Act as the backstop. Everybody under 400% poverty level is still covered with the affordable care act in place. So what we are really talking about is means testing Medicare by raising the retirement age. People who are upper income, above 400% of the poverty level won't be subsidized if they're younger retirees. It's where entitlement reform should go, to expand it into the retiree population."

Here's the deal. Raising the eligibility age for Medicare doesn't save taxpayers any money since the vast majority of those individuals will qualify for the Affordable Care Act subsidy to purchase health care from the private insurers or get Medicaid. Even though they won't be on Medicare these folks will still have government supported health care, only a more expensive form. Roy knows this.

In other words, instead of paying for care directly through Medicare, the US taxpayers will be transferring revenue to the likes of Aetna and United Health Care to act as middlemen for the administration of health care. This adds another layer of unnecessary bureaucracy. Medicare already has very low administrative costs so why add insurers to the administrative mix?

This is the exact opposite of what we should be doing. The more cost-effective solution is to lower the eligibility age for Medicare to age 55 years, with these younger individuals who choose Medicare paying the risk-adjusted cost plus some margin. This does a couple things:

1. It immediately adds healthy, paying people to Medicare, increasing it's solvency.

2. It provides a comparison of younger Medicare patients with private insurance customers for head to head analysis to see once-and-for-all which payer method is more cost-effective. My bet is on Medicare with its economies of scale and huge market power to drive costs down.

3. It allows soon-to-be retired workers to have health insurance independent of their employer, thus allowing more part-time work, mobility, and also relieving employers from having older members in their insurance risk pool.

If my hypothesis is correct, such an experiment would show that Medicare operates better than private insurers and we could eventually allow even younger workers to participate. Of course, the last thing corporate health insurance executives want to occur is such a comparison, and their mouthpieces in Congress will gladly trade higher marginal income tax rates in order to privatize Medicare.  Somewhere Grover Norquist is groaning.

Much to our dismay it appears that some Grand Bargain will be made to annul the "fiscal cliff" and that bargain will include the beginnings of a privatized Medicare system and the resultant huge transfer of public wealth to private health insurance companies via the Affordable Care Act subsidies. 

Pro-tip: If such a Grand Bargain includes raising the Medicare age, shares of United Healthcare (UNH), Aetna (AET), Wellpoint (WLP) and Cigna (CI) should all do well.