NCPA - National Center for Policy Analysis


August 22, 2006

Later this year, older adults with higher incomes will get unwelcome news from Uncle Sam: They'll have to pay a bigger share of their Medicare costs, starting in January.

  • Under the new means test, enacted as part of the 2003 Medicare prescription-drug act, about 1.5 million seniors will be required to pay higher premiums for Part B, which covers doctors' visits and outpatient care.
  • The change, to be phased in over three years, will affect single beneficiaries with incomes greater than $80,000 and couples with incomes greater than $160,000.
  • The premiums will be calculated on a sliding scale, based on adjusted gross income.

The means testing, designed to save Medicare $2 billion a year when fully phased in, is spurring sharp debate even before the change goes into effect.  Supporters say it's only fair that wealthier Americans pay more for benefits.  Critics counter that Medicare was designed to be a social-insurance program, not a welfare program, and that all beneficiaries should pay the same.

Both sides agree that the move holds important implications for Medicare, which covers 41 million elderly and disabled people.  With tens of millions of baby boomers approaching retirement, some Medicare experts say means testing should be extended to other parts of the program to ease its financial woes.

  • Currently, monthly premiums are set at a level equal to 25 percent of the estimated spending by Medicare Part B in any given year.
  • The other 75 percent is paid for by the government -- in effect, taxpayers.
  • Under the means-testing provision, the government subsidy for higher-income beneficiaries would be reduced.
  • For the wealthiest individuals, for example, the government subsidy would decline to 20 percent from 75 percent.

Source: Laurie McGinley, "Strong Medicine; Get ready: 'Means testing' -- and higher premiums -- are coming to Medicare," Wall Street Journal, August 21, 2006.

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