Misperceptions hobble Medicare

Taxpayers prop up current recipients

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WASHINGTON -- President Barack Obama had Senate Republicans nodding in agreement during a recent ice-breaking dinner as he described a basic problem for the nation's fiscal future: For each dollar in taxes that Americans pay for Medicare, they ultimately draw about $3 in benefits. What's more, he added, most people do not understand that.

The president was referring to the widespread and incorrect view -- especially among older Americans -- that Medicare recipients get only what they have paid for through taxes, premiums and medical co-payments. Now, that misperception is making it harder for politicians to consider trimming those benefits, or raising out-of-pocket expenses, as they seek to restrain Medicare spending that is rising unsustainably while baby boomers age and medical prices increase.

There has long been similar confusion about Social Security, although the current generation of new beneficiaries is roughly breaking even.

Late in 2012, for the sixth straight year, Medicare's trustees issued a warning that is required by law whenever more than 45 percent of the health program's costs must be covered by general revenues from all taxpayers.

To date, Mr. Obama has mostly proposed Medicare cuts not to benefits, but to Medicare payments for health care providers such as hospitals. He has supported reducing benefits or raising costs for higher-income beneficiaries but has made any broader benefit changes contingent on Republicans' agreeing to additional tax revenues from wealthy individuals and corporations.

Even so, Republican senators said they were heartened by Mr. Obama's dinner comments on the growing imbalance between Medicare's benefits and taxes. If they could not yet agree on solutions, agreeing on the problem was a start, said first-term conservative Sen. Ron Johnson, R-Wis., who was among the diners.

"I suggested it would be immensely helpful to reaching solutions to these problems if he would utilize that bully pulpit and start conveying to the American public the full extent -- the full depth -- of our problems," Mr. Johnson said.

Administration officials said Mr. Obama, in speaking of a 3-to-1 ratio of Medicare benefits to taxes, was referring just to Medicare's Part B coverage for doctor and outpatient services.

Older Americans pay about 25 percent of Part B costs through premiums, deductibles and coinsurance (high-income beneficiaries pay 35 percent to 80 percent). The rest comes from general revenues -- income taxes and other levies. The ratio is similar for Medicare's prescription drug benefit: While beneficiaries' premiums cover about a quarter of costs, the rest comes from general revenues and borrowed money.

Medicare payroll taxes finance only the program's Part A coverage for hospital costs.

While Mr. Obama apparently was speaking only about Part B, analysts say it is roughly true for all of Medicare that beneficiaries on average pay about $1 for every $3 in benefits.



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