UPDATE: While the fiscal slope was, dare we say, averted, the debt ceiling and sequestration loom ahead. Proposals to shift costs to people with Medicare are still being actively pursued. Raising premiums for wealthier beneficiaries remains on the table. The underlying arguments outlined in this post remain true. More means testing in Medicare is a deficit solution that will be paid for by middle class seniors and people with disabilities.
Without action, on January 1st the nation will begin to slide down what many economists call the "fiscal slope." If taxes go up for working and middle class Americans alongside drastic spending cuts, experts predict the economy will eventually slide into a recession. But this is not the only slope in the deficit negotiations. Some policymakers propose pushing middle- and high-income Medicare beneficiaries down another slippery slope by further increasing premiums based on their incomes.
An individual beneficiary living on $85,000 per year already pays higher Medicare Part B and D premiums -- which cover outpatient services and prescription drugs. Some proposals would change this calculation. Instead of simply being a matter of income, a fixed percentage of people on Medicare would pay higher premiums. An increasing share of beneficiaries would pay more over time, topping out at 25 percent of the Medicare population. This would be a significant jump from the 5 percent paying higher premiums today.
Who exactly would pay more? One analysis shows that this plan would hit middle class seniors and people with disabilities. If the plan was already in effect, then a beneficiary living on $47,000 per year would be forced to pay higher premiums. Like many other deficit reduction proposals, instead of finding cost savings in the health care system overall, this plan saves the federal government merely by shifting costs to people with Medicare.
Reasons to Reject a Further Slide Down the Means Testing Slope
If squeezing middle class retirees and people with disabilities is not reason enough to reject expanding means testing in Medicare, here are three more good reasons:
1) Wealthier seniors and people with disabilities already pay more. In 2012, 2.4 million Medicare beneficiaries (5.1 percent) will have paid the income-related premium already mandated by law. Also, higher-income households pay more for future Medicare benefits during their working lives. There is no cap on the 2.9 percent wage tax that helps to fund Medicare, and in 2013 the Medicare payroll tax will go up for wealthier earners with incomes of $200,000 for individuals and $250,000 for couples.
2) Health status determines ability to pay -- not income. Medicare coverage is not overly generous, covering about 50 percent of the average beneficiary's costs. Given these coverage gaps, health status has more to do with what someone can afford than income. In short -- the sicker you are, the more expensive your health care will be. For those who have serious, multiple and chronic illnesses, middle incomes can easily fall short and even higher incomes can start to become inadequate.
3) Means testing undermines the value of Medicare. Asking middle class or wealthy retirees and people with disabilities to pay more for Medicare chips away at the consistent, broad-based support for the program -- and for other earned benefits, like Social Security. Forcing wealthier Medicare beneficiaries to pay even more for coverage may cause some to drop Medicare entirely.
Medicare remains an overwhelmingly popular benefit, as consistently demonstrated in public opinion polls regardless of age, income level or political affiliation. American families are supportive of preserving Medicare because they know its value -- as a cornerstone of health and economic security. Further means testing would distance middle class and higher income beneficiaries from that value.
Taxes vs. Medicare Wealth-o-Meter
And there's more. Current proposals to further means test Medicare are blatantly unfair. To date, deficit reduction negotiations are running on two tracks: talk of tax reform and talk of cutting earned benefits, like Medicare. Many policymakers call for tax increases on the top 2 percent of earners. This call to action defines wealthy as those earning more than $250,000 per year.
But for Medicare, the law sets a different standard. Today a beneficiary living on $85,000 per year or more is required to pay higher Medicare premiums. Proposals to increase these income-related premiums would set the bar for what counts as wealthy even lower -- digging into the pockets of the middle class.
This glaring disparity is neither fair nor sensible. Throughout the election cycle and beyond, many policymakers vowed not to allow current tax cuts to expire -- essentially not to raise taxes -- for the middle class. A position that forces middle-income seniors and people with disabilities to pay more for Medicare is wholly inconsistent with this pledge.
More means testing in Medicare is the wrong approach to lessening our nation's deficit. It does not serve to strengthen Medicare's financial footing or rein in rising health care costs across the entire system. Instead, it extends a current practice that weakens the universality and integrity of Medicare.
And who will pay for this? The middle class.