Perhaps no other health issue is as important to so many Americans now and in the future as Medicare. In this new series, “Covering Medicare,” we will follow the reportage and offer Medicare beat memos from time to time.
A shout-out is in order for Rebecca Adams of Congressional Quarterly for presenting a straight story about means-testing Medicare—-that is, making beneficiaries with higher incomes pay more for their benefits. The pols are beginning to make noises about means-testing, but—oops—Adams reported the program is already means tested. Campaign Desk has reported this, too, but the media seem to have missed the point along with the politicos.
Adams wrote “momentum is again building to link Medicare premiums to income,” noting that House Speaker John Boehner endorsed the idea and House Minority Whip Steny Hoyer said he would consider it. Adams then went on to explain that Congress has twice required seniors with higher incomes to pay higher premiums for their benefits—in 2003 and in 2010 as part of the health reform bill. The health reform law also reduced the amount of the government subsidy higher income beneficiaries could get for their medications.
Said Adams: “The fundamental shift in Medicare attracted such little public notice that even former top Medicare officials initially were unaware of the most recent means-testing provisions included in last year’s health overhaul.” How’s that for Congress sneaking through some legislative fine print which tears apart one of Medicare’s founding principles? The 1965 Medicare law provided that all seniors would get equal benefits regardless of income—a point Adams made in her piece.
Seniors with higher incomes—$85,000 for individuals and $170,000 for couples—have been paying higher Part B premiums for awhile now. To review: Part B pays for physicians’ services, lab tests, and hospital outpatient care. This year the monthly premium is $115.40, but those with higher incomes are paying from about $46 to $254 more each month for their benefits. Those with higher incomes pay more. Part D premiums, which pay for the prescription drug benefit, are also higher for richer seniors. They vary depending on the drug plan seniors choose, but those with higher incomes will pay from $12 to $69 on top of whatever premiums the Part D insurance carrier charges.
The health reform law froze the income thresholds meaning that, over time, larger numbers of “wealthier” seniors will pay higher premiums. That’s one way to shore up Medicare’s shaky finances. Indexing thresholds to inflation would have meant fewer seniors would pay the higher amounts, a point Adams made. But wait, there might even be more tinkering. Former budget director Robert Reischauer told CQ that if Congress really wants to cut Medicare’s costs, it will have to target more people for higher premiums than is now the case.
So far, seniors with higher incomes haven’t fussed about paying more. Only about five percent of the program’s beneficiaries paid higher premiums last year, but it’s hard to say what will happen when larger numbers feel the pinch and a financial story turns political. Adams explored that noting many Democrats have gone along with the idea of making upper-income beneficiaries cough up more, so it may be difficult to label Republican proposals “as an unprecedented attack on Medicare.” It’s one of those pot-calling-the-kettle-black issues that’s likely to generate a bunch of ad wars to scare seniors like we saw during the last midterm elections.
Paul Van de Water, a senior fellow at the Center on Budget and Policy Priorities, notes on his blog that Medicare has always had income-related features. Since Part B is financed by general tax revenues, and since the tax system is progressive, upper income people have always paid more to finance Medicare Part B. Beginning in 2013, individuals with incomes over $200,000 and couples with incomes greater than $250,000 will pay higher payroll taxes to finance Medicare Part A, which pays for hospital care.
What’s the problem with making those with more money pay more? One Medicare expert told Campaign Desk last fall that the income-related premiums “could overtime undermine the support for the program.” Here’s how. Making those with more income pay more seems reasonable, but it’s possible those with higher incomes will eventually prefer to leave Medicare and opt for private insurance on their own, which might be cheaper and cover more. That could break up Medicare’s risk pool, with its robust mix of healthy and sick people, which makes the system work. That, in turn, could transform Medicare into a means-tested welfare program rather than social insurance. Those left in Medicare are likely to be in poor health and will find themselves paying a growing share of their medical costs as Medicare becomes even more expensive.