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Medicare and Means Testing

V I E W P O I N T

Congressional deliberations about how to reduce federal Medicare spending, as well as how to pay for preventing a reduction in payments to physicians, include proposals for means testing Medicare - that is, requiring higher-income beneficiaries to pay more of Medicare's costs.

Medicare premiums are already income related.  Medicare Part B, which covers physician and outpatient services, has been means tested since 2007 for beneficiaries with incomes above  $85,000 for an individual, and above $170,000 for a couple. In 2014, higher-income beneficiaries are paying premiums ranging from $146.90 to $335.70 per month, depending on their level of income, compared with the standard premium of $104.90. Extra Part D premiums range from $12.10 to $69.30.

Increasing means testing reaches far down into the middle class.  The number of beneficiaries subject to means-tested premiums is expected to increase from 2.4 million in 2011 to 7.8 million in 2019, an increase from 5 percent to 10 percent of Part B enrollees. Medicare Part D, the prescription drug benefit, is also means tested with the same income thresholds. The income thresholds - $85,000/individual and $170,000/couple – are frozen under current law until 2019 when it is estimated that approximately 10 percent of Medicare beneficiaries will be subject to higher premiums. Studies from the Kaiser Family Foundation and the Center for American Progress estimate that applying a higher premium to 10 percent of Medicare beneficiaries today would affect people with incomes of approximately $63,000.

Proposals to expand Medicare means testing include increasing income-related premiums under Medicare Parts B and D until 25 percent of beneficiaries are subject to higher premiums. A study from the Kaiser Family Foundation found that this would affect individuals with incomes equivalent to $45,600 for an individual and $91,300 for a couple today – meaning it would reach many middle-income Americans.

Wealthy individuals already pay more.  The Medicare Hospital Insurance (Part A) Trust Fund is financed with payroll taxes of 1.45 percent on employees, matched by employers, with self-employed individuals paying the full 2.9 percent. Since 1994, this payroll tax has been levied on all covered wages and self-employment without a limit. Therefore, the higher an individual's earnings, the more he or she will contribute to Medicare Part A during their working years. In addition, the Part A payroll tax increased in 2013 by an additional 0.9 percent on taxpayers earning above $200,000 for an individual and $250,000 for a couple. These same income thresholds also triggered a 3.8 percent surtax on unearned income, such as interest, dividends and capital gains, which will be applied to Medicare.

 

NATIONAL COMMITTEE POSITION

  • Additional means testing would undermine the social insurance nature of Medicare and ultimately raise costs for middle and lower-income seniors who depend on it.

  • If mean-testing results in Medicare becoming increasingly unfair to higher-income beneficiaries, they may opt out and purchase their own policy on the private market. The departure of higher-income beneficiaries, who tend to be younger and healthier, would increase overall costs and reduce public support for the program.

  • It is also important to keep in mind that over the past decade Medicare spending per enrollee has grown more slowly than private health insurance spending. Medicare’s costs are increasing due to overall health care inflation and the increase in beneficiaries as the baby boomers reach age 65.

  • Proposals which shift costs to beneficiaries, such as means testing and increasing the age of eligibility, create savings for the federal government by shifting costs onto middle-class beneficiaries. They do nothing to reign in overall health care spending.

We recognize the need to reduce federal health care spending and support proposals, such as building on the cost savings and efficiencies in the Affordable Care Act and requiring rebates for prescription drugs used by individuals dually eligible for Medicare and Medicaid, which do not shift costs to beneficiaries.

Government Relations and Policy, April 2014


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