Should rich people pay more for Medicare?

September 22, 2011

Should affluent seniors pay more for Medicare than everyone else? How about Social Security? Should we cut benefits for wealthy Americans?

Ideas for “means testing” these critical retirement programs are front and center as deficit reduction talks move back into high gear in Washington. Many Republicans are arguing that Social Security benefits should be cut for wealthy Americans — an idea also backed by the bi-partisan Simpson-Bowles deficit report. Meanwhile, President Obama proposed higher Medicare premiums for high-income seniors this week as part of the deficit plan he submitted to the Congressional Super Committee.

But what does means testing really mean, and what does it mean to seniors on Social Security and Medicare? In this post, let’s consider means testing for Medicare; a follow-up post on implications for Social Security can be found here.

Traditionally, “means testing” has meant measuring financial adequacy to determine eligibility for welfare – that is, it tests for inadequacy, not abundance. Politicians tossing around the term now really mean reducing benefits or jacking up contributions for rich people. That may sound like a minor distinction, but it’s important if you consider that Social Security and Medicare aren’t welfare programs, but entitlements available to seniors up and down society’s spectrum of wealth.

Lacking the stigmatization welfare carries, both programs enjoy such broad public support. A survey released today shows that voters oppose cutting Social Security and Medicare to reduce the deficit by a 50 point margin, and that opposition to cuts is strong across party lines. The poll was sponsored by National Committee to Preserve Social Security & Medicare, an advocacy group — but conducted by a bi-partisan team of Democratic and Republican pollsters.

Medicare already features significant means testing for the wealthy. In fact, President Obama’s new proposal would only expand higher premiums for wealthy seniors first enacted under the Medicare Modernization Act of 2003. That law established higher Medicare Part B (doctor visits and outpatient services) premiums for individuals with $85,000 or more in annual income, and joint filers with income over $170,000.

The 2010 healthcare reform law expanded these income-related premiums to the Part D prescription drug benefit, and to the Part C Medicare Advantage program. Prior to passage of the Affordable Care Act (ACA), the income thresholds were indexed to inflation annually to keep level the percentage of beneficiaries subject to the surcharge; the ACA froze the threshold at 2010 levels through 2019, starting this year.

That change will pull more seniors over the threshold over time. The Kaiser Family Foundation (KFF) estimates that five percent of Medicare enrollees are affected this year, a number that will rise to 14 percent by 2019.

The policy aims to help offset the cost of healthcare reform by reducing taxpayer subsidies on Medicare services for the affluent. The standard Part B premium is set annually to cover 25 percent of program costs; taxpayers foot 75 percent of the bill. Seniors subject to the new income thresholds will see that subsidy fall by the end of the decade to just 20 percent.

This week’s plan from the President would expand income-related premiums by 15 percent until 25 percent of beneficiaries are affected over time. While the mechanism for doing this wasn’t made clear, they’re most likely thinking of extending the freeze on inflation indexing past 2019. The White House says the move would save approximately $20 billion over 10 years in Medicare, on top of the $35.7 billion already expected under the ACA reforms for Parts B and D.

Can wealthy seniors afford this? While $85,000 in income may not sound that high, keep in mind that income typically falls in retirement after paychecks stop arriving. Social Security, pensions, and retirement account withdrawals are the usual income sources. So the income-related premiums mainly hit the most affluent seniors.

However, growing numbers of seniors are working in retirement out of economic need and will need Medicare. And the income premiums can take a big bite. High-income seniors who pay both Part B and Part D premiums could see their combined premiums rise anywhere from $300 to $700 per month by the end of the decade, according to Juliette Cubanski, associate director of Kaiser’s Medicare Policy Project.

And the affluent already pay much more for Medicare during their working years via the Federal Insurance Contributions Act (FICA) tax. Unlike Social Security, which taxes only the first $106,800 of income, there’s no cap on the Medicare portion of FICA, which funds the Part A hospitalization program. The employee’s share of the Medicare portion is a flat 1.45 percent of wages, and employers pay another 1.45 percent.

“You get the same benefit, but pay more,” says Lee Goldberg, director of health policy at the National Academy of Social Insurance. “It makes Medicare dramatically less valuable for the affluent.”

The Administration this week also proposed adding a new annual Part B deductible, a new co-pay for home healthcare services and a Part B premium surcharge for new beneficiaries who purchase near first-dollar Medigap coverage.

All of this comes against a backdrop of sharply-escalating costs and deteriorating retirement security for seniors. Most disturbing, the ideas on offer do very little to address the cost of health care – they simply charge beneficiaries more to meet those costs. And in health care, seniors are a captive market– they really don’t have anywhere else to turn.

Says Cubanski: “What else is there besides Medicare? The insurance marketplace for seniors is non-existent. Medicare is something people look forward to at 65, and the other insurance options are really limited.”

22 comments

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Of course they should pay more it should be based on your income!!

Posted by Majortom6667 | Report as abusive

You left out that the fed has tripled the money supply in the past few years. In 1969, a new car was less than 2000.00 and a year at a private university was less than 2000.00. Now both are about 40,000.00. So with inflation guaranteed in the future, everyone will be making more dollars that buy less, and so an ever larger part of the population will be paying the premium’s of the “rich”.

Posted by zotdoc | Report as abusive

I would rather that premiums would be adjusted based upon a person’s health status. If a person is fat and sits around and doesn’t exercise, diabetic and doesn’t follow medical advise, doesn’t eat right, high cholesterol, smokes, etc., why should Medicare (ie. all of us) have to pay for all of their health insurance? Let them pay more.

Posted by RmWBoston | Report as abusive

“Traditionally, “means testing” has meant measuring financial adequacy to determine eligibility for welfare – that is, it tests for inadequacy, not abundance.”

Maybe this is true in certain fields, but colleges have long measured “abundance” in deciding whether to give financial aid.

The only “disturbing” things you point out are based on the notion that someone who has an income of 80k but still has “need” will have to pay more for Medicare. If that’s a real problem raise the numbers. But is it? If the system is really in trouble and we have to preserve the ability of seniors with truly modest incomes to get healthcare, making a senior with an income of 80k get by with a little less spending money per month is not a problem.

Posted by jiminnc | Report as abusive

Yes, I agree that rich prople should pay more foe their medicare.

Posted by johnjmurphy | Report as abusive

Don’t employees pay into medicare each paycheck? If you are making six or seven figures in your pay, then aren’t you contributing more each paycheck than the average pay? So, whether you make $500,000 a week or $500 a week, you are contributing your “fair share” each paycheck. If you are contributing more each paycheck, why should you pay more premium costs than anyone else who makes much less and thereby contributes less. Any thoughts?

Posted by alwayslearning | Report as abusive

There should be an after retirement income cap on eligibility for Medicare. Anyone basically classified as wealthy should be able to take care of their own medical expense issues. Not fair because they have paid into it? Well that has a simple solution, cash them out of the thing, i.e.; a refund, plus interest. Cashing them out will be far less expensive than the system bearing the burden of medical treatment for anywhere from ten to 25 years.

The same idea may also be a viable concept for Social Security though I personally would like to see that become a 100% mandatory savings program with deposits in to local banks. Time to get the darn government out of everyone’s lives.

Posted by USMCPatriot | Report as abusive

Why should anyone pay more for a broken system? When can people really start thinking about the root cause? Is this whole mess caused by the rich not paying enough or drawing too much? What the intention of Obama to keep dancing around the core issue?

Posted by Whatsgoingon | Report as abusive

We certainly don’t want to treat everyone in America equally now, do we?

Posted by madampolo | Report as abusive

madampolo……..everyone is treated equally. Everyone has an equal chance to become wealthy so to speak. All one has to do is get off their butts and not expect the darn government, i.e.; everyone else to pick up the slack because they don’t get off their butts or think beyond they day they are living.

Posted by USMCPatriot | Report as abusive

Even in Europe we are not so Communistic. It is an insureance !! All should pay equally and benefit equally. Really difficult.

Now, about Taxes, it is a whole different subject.

Posted by FBreughel1 | Report as abusive

Indeed, FBreughel1. The scaling tax by income needs to make a flurious comeback. 80% tax on millionaires? 95% on billionaires? 98% on trillionaires? 99.5% on quadrillionaires? 10% on the brutally impoverished… This would truly fix the system in the manner it was handled in the era that conquered the Great Depression. Of course, reducing inflation would be lovely. I’d revel in once more being able to buy a loaf of bread for a penny, a small house for a mere hundreds of dollars. Our society is quite clearly too stupid and stubborn to adopt such measures, however, as they want continuity no matter how their countrymen suffer. Worse, the governing bodies are so heavily influenced by lobbyism (bribery) and corporate bullying (extortion, blackmail, etc.) that justice and true liberty is as far apart from the American people as the east is from west. We have been hoodwinked for generations and it’s time to fix things, but those able refuse to do anything.

Posted by Xeraphim | Report as abusive

Do wealthier retired federal employees pay more for federal benefits?? Why are Federal employees entitled to anymore benefits than anyone else.Rich peoples should pay more taxes.

Posted by GOLDENRULE | Report as abusive

No one seems to be discussing the abuse, waste, and fraud which is causing Medicare to go broke. What about the $40,000 wheelchairs Medicare pays for. If the government cracked down on medical equipment abuse and fraud, a lot of money would be saved. Ditto for dishonest or abusive doctors and hospitals.

Posted by silverack777 | Report as abusive

Simple solution- national healthcare. If you can afford it, you can buy private insurance just like in most other countries, but you still have something to fall back on. What’s all this “get the government out of our lives” nonsense? Are we not a government ” of, by, and for the people?” If so, then why would we not want to be in control of our own services, insurance, etc.? It’s called a “co-op”. Of course, if you are against any and everything the government does, then you must admit that we DO NOT have a democracy, but rather a government controlled by the major corporations and the ultra wealthy. DUH! Take to the streets, my friends!!!!

Posted by bjsauburn | Report as abusive

no, the rich should not pay more. Medicare is insurance. the way to pay for increased costs is to raise the premium enough so that “pay as you go” pays current costs. this spreads the cost over an entire working career, while you have an income, and before you have specific high cost needs. that’s what insurance does. only Medicare can take advantage of pay as you go so that premiums can be paid fifty years before you need help with the expenses.

by making the rich pay more you turn “insurance” into “welfare” and all the bad things that means.

for those who think pay as you go means that you are paying for someone else’s granny, you need to remember that when you are old someone else will be paying for you, but they won’t mind because when they are old someone else will be payig for them.

and if you think that is “unfair” you need to stop an ask who “pays for” it when you withdraw “your own” money from the bank.

Posted by coberly | Report as abusive

LAst year i became eligible for medicare and signed up for parts A and B. but i am still working and my income was high enough that my medicare coverage was high and cost me more than what i need to pay for a company plan. i cancelled medicare and the country does not have to pay for me yet. i didn’t like it but it makes sense to me – why should i take public resources if i don’t need them? IT makes sense to remove the incentive for higher income people if they have reasonable options. When i stop working my income will drop and i will really need the system.

Posted by KARS | Report as abusive

So… if you’re frugal and conserve your resources, you’re penalized. What incentive is there to act responsibly? Spend, spend, spend all your income so as not to be “wealthy” when you retire.

Posted by FuldaGap | Report as abusive

Yes. Social Security and Medicare were designed to assist those who do not have any other source or means. I get sick when I read about a wealthy person using his/her SS to pay for greens fees or buying the latest fashion. I believe it should be on a graduated scale up to the current limit. How to determine what is fair maybe to look at net worth. As the law stands now if I’m not mistaken; Mr. Warren Buffet would be eligible for SS payment.

Posted by alrcsd | Report as abusive

Yes they should pay much more then ordinary middle class people.

Posted by rlain | Report as abusive

I saved for 30 yrs so I could pay off my mortgage when I retired. My retirement benefit is $50k/yr. At 65 it dropped to $38k/yr so I pulled out savings to pay off my mortgage since I couldn’t afford the payments. It wasn’t “income” for that year, it was withdrawal from savings from previous years. So my Medicare premium was increased to close to $50/mo. when I can least afford it since my income is only $38k/yr. A far cry from an “affluent” $85k. It’s so not fair, I can barely afford the utility bills here in Alaskan winters and I’m labeled “high income”. So not fair.

Posted by icicle | Report as abusive

I am over 65 and still on private insurance because I can afford it. I am appalled that this entitlement (welfare) is given to those who have money for European river vacations, new expensive cars, and high-end homes. I speak from experience as I know people with plenty of money who are on Medicare.

I remember reading that Marlon Brando’s Medicare card was being auctioned on eBay and was stunned that a multi-millionaire with a private island, whose estate still earns $8,000,000.00 a year, was stealing from the American taxpayer.

There is a growing Medicare stigma. Doctors are refusing to take Medicare patients and the American public is beginning to ask a question that should have been asked a long time ago.

Why is this entitlement program not only offered to people with the means to buy their own insurance but why is it available only to those 65 and older?

Posted by ElvisontheRoad | Report as abusive