'Means testing' and higher premiums coming to Medicare
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Later this year, older adults with higher incomes will get unwelcome news from Uncle Sam: They'll have to pay a bigger share of their Medicare costs, starting in January.
Under the new means test, enacted as part of the 2003 Medicare prescription-drug act, about 1.5 million seniors will be required to pay higher premiums for Part B, which covers doctors' visits and outpatient care. The change, to be phased in over three years, will affect single beneficiaries with incomes greater than $80,000 and couples with incomes greater than $160,000. The premiums will be calculated on a sliding scale, based on adjusted gross income.
The means testing, designed to save Medicare $2 billion a year when fully phased in, is spurring sharp debate even before the change goes into effect. Supporters say it's only fair that wealthier Americans pay more for benefits. Critics counter that Medicare was designed to be a social-insurance program, not a welfare program, and that all beneficiaries should pay the same.
Both sides agree that the move holds important implications for Medicare, which covers 41 million elderly and disabled people. With tens of millions of baby boomers approaching retirement, some Medicare experts say means testing should be extended to other parts of the program to ease its financial woes.
Currently, monthly premiums are set at a level equal to 25 percent of the estimated spending by Part B in any given year. The other 75 percent is paid for by the government -- in effect, taxpayers. Under the means-testing provision, the government subsidy for higher-income beneficiaries will be reduced. For the wealthiest individuals, for example, the government subsidy will decline to 20 percent from 75 percent.
The result: Seniors with higher incomes will see a rise in what they have to pay for their Part B coverage, on top of the regular premium increases that occur most years to help cover the program's steadily rising costs. Means testing won't apply to the separate Part D premiums charged for prescription-drug coverage.
For 2006, the Part B premium is $88.50 a month; that number is expected to rise to at least $98.20 next year, reflecting increasing costs. That's what individuals with incomes of less than $80,000 will pay. But seniors with incomes of $80,000 to $100,000 will pay an estimated $111.20 a month; those with incomes of $100,000 to $150,000 will pay $130.70; those with incomes of $150,000 to $200,000 will pay $150.10; and those with incomes above $200,000 will pay $169.50, according to estimates by the Centers for Medicare and Medicaid Services, which runs Medicare.
By 2009, when means testing is fully phased in, beneficiaries with incomes above $200,000 are expected to pay an estimated $314.60 a month, more than three times the premium for those with incomes of less than $80,000. The income thresholds will be adjusted for inflation.
Seniors' advocacy groups, including AARP, based in Washington, are staunchly opposed. They argue that means testing won't save the government much money, and that it undermines the everyone-in-the-same-boat nature of the program.
"The great thing about Medicare," says Deane Beebe, a spokeswoman for the Medicare Rights Center, an advocacy group based in New York, "is that everybody is in it together."
Maria Freese, director of government relations and policy at the Washington-based National Committee to Preserve Social Security and Medicare, agrees, saying, "This isn't supposed to be a means-tested welfare program. It's insurance that people are buying, and it isn't typically structured so that rich people pay more." Now that means testing is established, she fears it will be tempting for cash-strapped lawmakers to lower the income thresholds.
Others say that means testing in Medicare will pave the way for means testing in Social Security. Rep. Nita Lowey, a New York Democrat, has introduced a bill to repeal the means-testing provision, but the legislation is unlikely to get traction anytime soon.
That's good, say supporters of means testing. Former Sen. John Breaux of Louisiana, who was a member of the Senate Finance Committee and has long been active on health-care issues, says that "everyone wants you to fix" Medicare's financial problems but nobody wants to take the tough steps -- like increasing the eligibility age or reducing benefits. Requiring well-off beneficiaries to pay more is one of the least painful ways to begin dealing with Medicare's fiscal woes, he says.
"There is a class of people," he says, who don't really need government-subsidized health care. In addition, he notes that Medicare Part D, which covers prescription drugs, already incorporates means testing of a different type: Low-income people pay lower premiums for their drug coverage. This benefit isn't automatic, Ms. Beebe of the Medicare Rights Center notes. Participants must apply to get the drug subsidies.
University of Pennsylvania professor Mark Pauly also supports means testing. He argues that the change "is preferable to brute-force rationing" of benefits, which he says is inevitable unless Medicare is put on a better financial footing. "Everybody would prefer to avert their eyes, rather than look at Medicare's future," he says.
He sees means testing for the Part B premium as "just a drop in the bucket," and says the concept should be extended to other parts of Medicare. Specifically, he proposes that affluent seniors be required to pay for new medical technology -- the innovative devices and drugs that improve health but also drive much of the growth in Medicare spending. Under his plan, such technology would be covered for low-income beneficiaries.
Proposals to require better-off retirees to pay higher premiums have popped up in various proposals and bills for decades. Means testing actually was enacted in 1988, when Congress passed and President Reagan signed a Medicare bill that provided coverage for high-cost illnesses and prescription drugs. To help finance the expanded coverage, a "supplemental premium" was imposed on some affluent beneficiaries.
The move sparked such outrage among older adults -- including a famous incident in which a crowd pounded on the car of Rep. Dan Rostenkowski, then chairman of the Ways and Means Committee -- that Congress repealed the law in 1989.
Robert Blendon, professor of health policy and management at the Harvard School of Public Health, doesn't expect a repeat of that revolt. He says surveys he has conducted suggest that most seniors support requiring higher-income beneficiaries to pay more. But they oppose denying benefits to higher-income people. "Seniors don't want the benefits of Medicare limited to low-income people," he says.
While the debate swirls, the government is preparing to implement means testing for next year. The Internal Revenue Service will release tax-return information to the Social Security Administration to identify which beneficiaries will have to pay higher premiums. The amount of the premium will be based on adjusted gross income, with some modifications.
The determination of who will be subject to the higher premium will be based on income from the tax year that occurred two years earlier. Thus, the premiums for 2007 will be based on a person's adjusted gross income for 2005.
A Social Security spokeswoman says the agency will inform individuals by December how much they'll be paying next year. If beneficiaries wish, the agency will deduct the higher premiums from their Social Security checks, just as it now does with the regular premium.
People whose income has changed drastically, due to divorce or the death of a spouse, can ask that the government consider income from a more recent tax year.
First Published August 22, 2006 12:00 am