Medicare Costs to Increase for Wealthier Beneficiaries

By ROBERT PEAR
Published: September 11, 2006, New York Times

WASHINGTON, Sept. 9 — Higher-income people will have to pay higher Medicare premiums than other beneficiaries next year, as the government takes a small but significant step to help the financially ailing program remain viable over the long term.

The surcharge is a major departure from the traditional arrangement under which seniors have generally paid the same premium.

It is expected to affect one million to two million beneficiaries: individuals with incomes exceeding $80,000 and married couples with more than $160,000 of income. For individuals with incomes over $200,000, the premium, now $88.50 a month, is expected to quadruple by 2009.

The surcharge was established under a little-noticed provision of the 2003 law that added a prescription drug benefit to Medicare.

Supporters of the surcharge say it makes sense for wealthy people to pay more at a time when Medicare costs are soaring. But some Medicare experts worry that wealthy retirees will abandon the program and rely on private insurance instead, leaving poorer, sicker people in Medicare.

The premium in question is for Part B of Medicare, a voluntary program that covers doctors’ services, diagnostic tests and outpatient hospital care.

“The higher premiums could drive people with higher incomes out of Medicare,” said Samuel M. Goodman, a 73-year-old retiree in Derwood, Md. “Medicare would then become a welfare program, rather than a universal social insurance program, and it would be easier to attack.”

Federal officials have repeatedly said that Medicare is financially unsustainable in its current form.

Congress said the surcharge would “begin to address fiscal challenges facing the program.”

Joanne S. Shulman, who worked at the Social Security Administration for 35 years, said, “The surcharge will come as a shock to many people because they have not received any warning.”

Most beneficiaries now pay the same premium for Part B of Medicare. That amount has been increasing rapidly even without a surcharge. The standard premium has shot up an average of 12 percent a year since 2001, when it was $50 a month.

The premium is set each year to cover about 25 percent of projected spending under Part B of Medicare, which has been growing because of increases in the number and complexity of doctors’ services. General tax revenues pay 75 percent of the cost.

The Bush administration plans to announce the standard premium for 2007 later this month. In July, Medicare officials estimated that it would be $98.40 a month. The surcharge will be phased in from 2007 to 2009.

Here is how it will work: The surcharge for 2007 will be computed by the Social Security Administration, using income data obtained by the Internal Revenue Service from tax returns for 2005. If an individual has modified adjusted gross income of $80,000 to $100,000, the surcharge will be 13.3 percent, which adds about $13 to the monthly premium, for a total of about $111.50. For a single person with income of more than $200,000, the surcharge will be 73.3 percent, or about $72 a month, for a total premium of about $170.50.

When the transition is complete in January 2009, according to Medicare actuaries, the total premium for a person with income of $80,000 to $100,000 will be 1.4 times the standard premium. A person with income of $100,000 to 150,000 will pay twice the standard premium. A person with income of $150,000 to $200,000 will pay 2.6 times the standard premium, and a beneficiary with more than $200,000 of income will pay 3.2 times the standard amount.

If the basic premium rises 10 percent a year — a relatively conservative forecast — the most affluent beneficiaries will be paying premiums of more than $375 a month in 2009.

Under current law, the $80,000 threshold and the income brackets will be adjusted each year to keep pace with inflation, as measured by the Consumer Price Index.

President Bush recently proposed eliminating these annual adjustments, so that more people would pay a surcharge. “This change gives beneficiaries increased participation in their health care,” he said.

More than 40 million people are in Part B. Medicare officials estimate that 2 percent of them will have to pay a surcharge next year. The Congressional Budget Office says 5 percent of beneficiaries will be affected. The Social Security Administration puts the figure at 4 percent to 5 percent. Most people have their premiums deducted from monthly Social Security checks.

Fiscally conservative Republicans supported the surcharge. But so did some Democrats, who saw it as a progressive way to finance Medicare without cutting benefits or raising payroll taxes.

Senator Dianne Feinstein, Democrat of California, argued that “high-income beneficiaries can afford to pay a larger share of Medicare’s costs,” in part because Congress has cut their taxes in recent years.

The Congressional Budget Office estimates that the surcharge will raise $15 billion from 2007 to 2013.

Representative Nita M. Lowey, Democrat of New York, recently introduced a bill to repeal the surcharge, which she says will hit “more and more middle-class seniors.” Some advocates for older Americans, including the Senior Citizens League, with 1.2 million members, are lobbying for repeal.

A beneficiary can obtain relief from the surcharge by showing that the I.R.S. data was incorrect or that the person’s income declined because of a “major life-changing event” like the death of a spouse or the loss of pension benefits.

Theodore R. Marmor, a professor of political science at Yale, said the surcharge was more important for the politics of Medicare than for the financing of the program.

“The new income-related premium is fundamentally at odds with the premises of social insurance,” Mr. Marmor said. “Large numbers of upper-income people will eventually want to find alternatives to Part B of Medicare and will no longer be in the same pool with other people who are 65 and older or disabled. Congress will then have less reluctance to cut the program.”



Copyright 2006 The New York Times Company