NCPA - National Center for Policy Analysis

Means Testing Medicare

October 31, 2003

There are a number of controversial elements to proposed legislation that would add a new drug benefit under Medicare and subject the program to private-sector competition. One with far-reaching implications for both Medicare and Social Security, says Walter Shapiro in USA Today, is means-testing benefits.

By means-testing, he means that wealthier seniors could be required to pay more. He does not mention, however, that there are already means-tested health benefits for the elderly -- called Medicaid. Moreover, even if wealthier seniors are not charged more for prescription drug benefits, low-income seniors will likely be charged little or nothing compared to the premiums for seniors of relatively modest means.

As a recent NCPA study ( pointed out, this means testing will impose effective marginal tax rates of up to 156 percent on seniors as subsidized drug coverage phases out.

The conference committee trying to work out the bill's details has agreed on a sliding-scale payment plan to cover doctor visits and the cost of the prescription-drug benefit:

  • Most Medicare recipients would continue to pay premiums pegged at 25 percent of the program's cost, but those who earn more than $80,000 a year would contribute more.
  • This income-adjusted payment plan would start at 35 percent for Medicare recipients in the $80,000-$115,000 bracket and go up to 90 percent for those making $200,000 a year from wages or investments.

Some Democrats warn it could mean the end of the entitlement (right) to benefits under the program. But Bruce Reed of the Democratic Leadership Council point out "...the bigger slippery slope that Medicare is on is bankruptcy.''

Source: NCPA research and Walter Shapiro, "Medicare Proposal Is a Major Philosophical Shift," USA Today, October 31, 2003.


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