Means Testing is Harmful to Medicare

Thanks to Don McCanne for this article and his comments afterward!


The New York Times October 6, 2003

Medicare Plan Lifts Premiums for the Affluent

By Robert Pear

WASHINGTON, Oct. 5 - With unexpected support from some Democrats,
Republican negotiators from the House and the Senate say they are
seriously considering a change in Medicare that would require elderly
people with high incomes to pay higher premiums than other
beneficiaries.

The discussions come as the negotiators step up their efforts to reach
agreement by Oct. 17 on a bill to overhaul Medicare and add
prescription drug benefits.

The proposal to link premiums to income raises a philosophical and
political question: Should wealthy people pay more for Medicare?

Republicans like Senator Don Nickles of Oklahoma say such a
requirement is a sensible, progressive way to slow the growth of
federal Medicare spending. The Senate majority leader, Bill Frist of
Tennessee, said the Medicare negotiators had "a mandate" to charge
affluent people somewhat more.

In the past, Democrats have vehemently opposed the idea. But some of
the social policy experts most respected by liberal Democrats now say
they are receptive to it, as a way to avert cuts in Medicare and other
domestic programs. Pressure for such cuts will increase, they say, as
budget deficits grow and baby boomers cash in their claims to Medicare
and Social Security.

Most of the 40 million Medicare beneficiaries now pay the same
premium, $58.70 a month, or about $704 a year, for doctors' services
and other outpatient care.

Under one proposal being discussed by House and Senate negotiators,
premiums would rise gradually with a beneficiary's income. The change
would affect only people with annual incomes above a certain level,
perhaps $75,000 or $100,000. Individuals with incomes exceeding
$200,000 could see their premiums triple, to about $2,100 a year.

AARP, the lobbying group for older Americans; labor unions like the
United Automobile Workers; and some liberal Democrats, including
Senator Edward M. Kennedy of Massachusetts, say levying an extra
charge on affluent beneficiaries would undermine the universal nature
of Medicare. Such a change, they say, would be a dangerous first step
in turning Medicare from a universal social insurance program into a
welfare program.

But Robert M. Ball, who worked at the Social Security Administration
for three decades and was commissioner from 1962 to 1973, said: "I
don't see an objection to having an income-related premium. I am
opposed to varying Medicare benefits according to the income of the
recipient, but I find it completely acceptable to have people with
higher incomes pay more for those benefits."

Robert Greenstein, executive director of the Center on Budget and
Policy Priorities, a liberal-leaning research and advocacy group, and
Robert D. Reischauer, president of the Urban Institute, a research
organization, said they favored linking Medicare premiums to income.

"This is one of the most reasonable, most justifiable, least painful
changes you could make," Mr. Greenstein said. "It does not do violence
to Medicare as a program that provides the same coverage and benefits
to everyone."

Mr. Reischauer, a former director of the Congressional Budget Office,
said that "asking upper-income elderly people to pay a little more"
was fairer than some of the alternatives: raising payroll taxes,
increasing Medicare premiums for all beneficiaries and cutting
benefits.

The Senate bill does not include any kind of so-called means test,
though the Senate did show support for the idea in a test vote on a
proposal to increase the basic Medicare premium for affluent elderly
people.

"High-income beneficiaries can afford to pay a larger share of
Medicare's costs," said Senator Dianne Feinstein, Democrat of
California.

Mrs. Feinstein, who offered the proposal, said it would affect about 2
percent of beneficiaries: individuals with incomes exceeding $100,000
a year and couples with incomes of more than $200,000.

The House endorsed a more complicated plan that would require affluent
beneficiaries to spend more of their own money before they could get
Medicare coverage of catastrophic drug costs.

"I do not believe that someone with a $200,000 income living in a
gated community should have exactly the same subsidy as someone
struggling along on $25,000 or $30,000 of income," said Representative
Nancy L. Johnson, Republican of Connecticut, who is the chairwoman of
the House Ways and Means Committee's Subcommittee on Health.

In 1997, the Senate voted, 70 to 30, to charge higher premiums to
affluent beneficiaries. The proposal did not become law but won
support from 21 Democratic senators, including John B. Breaux of
Louisiana, Bob Graham of Florida and Max Baucus of Montana. Mr. Breaux
and Mr. Baucus are on the conference committee working on the Medicare
bill.

Republicans say it is strange that Democrats who want to impose higher
income taxes on millionaires refuse to impose higher Medicare premiums
on wealthy retirees.

Senator Kennedy said he feared that an increase in premiums would
prompt high-income people to leave Medicare, raising costs for those
who remain. Some Democrats also make an argument based on social
solidarity: If affluent people have to pay more, their political
support for the Medicare program will erode.

Mr. Reischauer said he doubted that many affluent people would drop
out. Even if premiums doubled or tripled, he said, "Medicare would
represent a very good deal."

Higher-income workers already pay more into Medicare than other
people. The Medicare payroll tax is levied at the same percentage
rate, regardless of a person's income, and there is no ceiling on the
amount of earnings subject to the tax.

  http://www.nytimes.com/2003/10/06/politics/06MEDI.html?th


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Comment by Don McCanne

Means testing of the Medicare premium seems like a benign and perhaps
even beneficial proposal. It is appealing enough such that it is
acceptable to individuals such as Robert Reischauer, Dianne Feinstein,
Robert Greenstein, and the greatest social insurance icon of them all,
Robert M. Ball. But is it really benign?

There is no disagreement that Medicare must be progressively funded.
Low-income individuals with minimal resources would never be able to
fully fund their benefits under the program. This means that those
with higher incomes must fund more than their share, but at levels
that still are not burdensome. Most of Medicare is funded by general
revenues and by uncapped payroll taxes, both of which are progressive
taxes (though only general revenues also have progressive tax rates).

A small portion of Medicare is funded by the premiums paid by the
beneficiaries. These premiums are a form of regressive financing since
the percentage of income paid for premiums declines as income
increases. Consequently, some progressives are willing to support
means-tested premiums in a compromise with conservatives who wish to
shift more of the Medicare funding to the individual beneficiaries.

The benefit package provided by Medicare should be assessed as a
separate issue from the funding of the program. Benefit packages have
two components. First, the specific benefits that are provided,
including services and products, are crucial. The current debate over
pharmaceutical coverage exemplifies this. The second component is
actually a negative benefit, and that is the amount of cost sharing
that is passed to the beneficiary. This cost sharing includes
deductibles (e.g. $840/hospitalization), co-payments (e.g.20% of most
non-hospitalization costs),  coinsurance, and premiums paid. (It also
includes services and products not covered by the program.)

Our social contract to provide health care coverage to those over 65
and to those with long-term disabilities made a promise to provide
adequate health care benefits and to prevent impaired access through
financial barriers. We should continue to honor this contract through
our program of social insurance: Medicare. To do this, we must ensure
that Medicare remain a universal program so that it will continue to
receive the political support that it needs. If the affluent are
allowed to take their premium and purchase care outside of the system,
Medicare inevitably will be converted into a welfare program, like
Medicaid. Boutique medicine for the wealthy and Medicaid for the
masses is not acceptable health care policy.

So why don't we accept the fact that the premium is part of the
funding, and not consider it when discussing Medicare benefits? After
all, a means-tested premium is a progressive method of funding
Medicare. But the premium belongs to the beneficiary and is paid only
after the individual becomes a Medicare beneficiary. It is a part of
the beneficiary package. And there is no mandate that it be paid into
the program (unlike income and payroll taxes). If beneficiaries walk
away from the Medicare program, they take their premiums with them.
Means-tested premiums give higher-income individuals a much greater
incentive to walk away.

The social insurance contract calls for the same benefits for
everyone. Let's not break that contract by arbitrarily shifting the
premium paid from the benefit side of the Medicare equation over to
the funding side. Funding and benefits are totally different issues.
Let's not blur the line and allow entry of those who would destroy
Medicare as a program of social insurance.

PLEASE SHARE THIS MESSAGE WITH OTHERS. LET'S BE SURE THAT WE HAVE
ENOUGH SUPPORT IN THE SENATE TO BLOCK THIS ONE.

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