Medicare and Means Testing

Viewpoint

2018-11-06T16:54:33+00:00November 5th, 2018|Medicare Policy Papers|

In the past few years, Congress has passed legislation that includes proposals for further means testing Medicare – that is, requiring higher-income beneficiaries to pay more of Medicare’s costs – to reduce federal Medicare spending and to pay for other priorities.

Medicare premiums are already income related.  Medicare beneficiaries with incomes above $85,000 for individuals and $170,000 for couples are paying higher Part B and D premiums due to provisions in the Medicare Modernization Act of 2003 (MMA) and the Affordable Care Act (ACA). In addition, beginning in 2018, beneficiaries with incomes above $133,500 are paying higher premium subsidies than were previously scheduled due to a provision in the Medicare Access and CHIP Reauthorization Act (MACRA) of 2015. And starting in 2019, individuals with incomes above $500,000 and couples with incomes above $750,000 will be paying a higher share of their Medicare premiums due to a provision in the Bipartisan Budget Act of 2018.

In 2019, higher-income beneficiaries will be paying premiums ranging from $189.60 to $460.50 per month, depending on their level of income, compared with the standard premium of $135.50. Extra Part D premiums will range from $12.40 to $77.40 above the $33.19 national base beneficiary premium. The higher premiums range from 35 percent to 85 percent of Part B and D spending, compared with the standard monthly premium that covers 25 percent.

Increasing means testing reaches far down into the middle class.  The income thresholds for income-related premiums are frozen under current law until 2019, meaning a greater proportion of beneficiaries are affected each year as incomes rise and more people cross the threshold. The number of Medicare beneficiaries subjected to higher premiums increased from 3.5 percent in 2011 to 6.6 percent in 2017. Under current law, the thresholds will be indexed to price inflation beginning in 2020 except for the top-level income thresholds of $500,000/$750,000, which are frozen until 2028. This means that more higher-income beneficiaries will be paying the top premiums each year. Means testing could also increase costs for middle and lower-income seniors if higher-income seniors, who are often younger and healthier, are driven away from Medicare by increased cost sharing. This would undermine the success with this important social insurance program.

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 payroll cap like Social Security. 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 trigger a 3.8 percent surtax on unearned income, such as interest, dividends and capital gains, which is applied to Medicare.

NATIONAL COMMITTEE POSITION

  • We oppose means testing in general, and we opposed the legislation that was passed by Congress to require some Medicare beneficiaries to pay 85 percent of their Part B premium.
  • 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.
  • 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 the number of Medicare beneficiaries as the baby-boom generation ages into the program.
  • 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, requiring rebates for prescription drugs used by individuals dually eligible for Medicare and Medicaid and allowing Medicare to negotiate the prices of prescription drugs, which do not shift costs to beneficiaries.