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VOL. 127 | NO. 249 | Friday, December 21, 2012

Medicare Premiums Could Rise for Many Retirees

RICARDO ALONSO-ZALDIVAR | Associated Press

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WASHINGTON (AP) – They may not agree on much else, but there's a change to Medicare that President Barack Obama and Republicans both support: Expand a little-known law so more retirees that the government considers well-off are required to pay higher monthly premiums.

It's on the short list in the budget talks, raising $20 billion or more over 10 years.

That could come as a shock to many seniors who would have to pay the higher premiums and consider themselves comfortably middle-class, yet by no means wealthy.

It happened to Tom James. He and his wife recently got an official notice that they will have to start paying more for Medicare next year, about $1,000 for the two of them.

James is among some 2 million beneficiaries currently facing higher "income-related" premiums for outpatient care, or Medicare Part B. If the budget proposal goes through, that number would grow over time to 20 million.

"I was blindsided," said James, a retired bank examiner who lives near Philadelphia. "The camel has got his nose in the tent now, and the question is how far do they want to go with that?"

Income-based premiums were introduced for outpatient care under former President George W. Bush and later expanded to the prescription benefit, or Medicare Part D, by Obama's health care law. The idea now is to keep broadening their reach.

How would it work?

Think of it as two bites.

First, the current income-based premiums would be ratcheted up. Those surcharges are assessed on a sliding scale, and kick in for individual beneficiaries making more than $85,000, or $170,000 for couples.

Second, the number of beneficiaries who have to pay higher monthly premiums would be gradually expanded by a few hundred thousand people each year. That would be done by extending a temporary freeze on the income thresholds at which the higher premiums are assessed.

Without adjusting the thresholds for inflation, the share of beneficiaries on the hook for higher premiums would keep growing from 5 percent currently until it reached 25 percent, or 1 in 4 people with Medicare.

Backers of the idea – Obama administration officials, prominent Republicans in the House and Senate and nonpartisan experts – say it's foolish for Medicare to keep subsidizing people who can pay their own way, particularly when the program faces long-range financial problems.

"What we're talking about here is a premium structure that makes sense," said Robert Bixby, executive director of the nonpartisan Concord Coalition, which advocates reducing the deficit. "Politicians have been afraid to charge full fare because of public reaction. But that time is coming to an end."

Medicare serves about 50 million Americans, including seniors and disabled people. Half have annual incomes below $22,500.

Technically, the program's outpatient and prescription coverage is optional. In practice, it's too good a deal to pass up. By law taxpayers cover 75 percent of the premiums, and beneficiaries pick up the remaining 25 percent.

That's the way it works for most people. Medicaid pays premiums for the poor, while people the government considers well-off shoulder an increasing share of premiums, starting at 35 percent and going all the way up to 80 percent for individuals making more than $214,000 and couples over $428,000.

Polls show that Americans clearly prefer raising premiums on wealthy beneficiaries as opposed to a general increase. However, few people are aware that the government is already collecting higher premiums from some beneficiaries. Very few know the details.

"I think wealth is in the eye of the beholder," said Tricia Neuman, a Medicare expert with the nonpartisan Kaiser Family Foundation. "This premium affects people with incomes starting at $85,000, but in the discussion over taxes $85,000 is not generally considered high income."

AARP says hiking the premium would be equivalent to a tax.

"This is a payment to the federal government based on your income, and that is a form of a tax," said David Certner, legislative policy director for the older people's lobby.

Not so, says Bixby. Even the wealthiest beneficiaries still get some subsidy under the plan, just not a 75 percent price break.

AARP also worries that charging seniors more based on income could taint Medicare as a welfare program, undercutting its political support.

James, the Philadelphia-area retiree, said the higher premium feels like a tax to him. "I'm making a payment to a government program," he said.

He said he figures he and his wife were probably pushed over the threshold because of distributions from retirement accounts that people in their 70s are required by law to take.

It's causing him to rethink how he feels about Medicare.

Copyright 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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