A Wedge in the Door

Millions of seniors will receive a rude surprise in the next two weeks when they open a mailing from the federal government explaining how the Medicare program will work in 2007. For the first time ever, beginning in January, what a senior pays for Medicare premiums will be linked to his or her income. This change was slipped into the Republican-drafted Medicare drug bill that leaders rammed through Congress in 2003, but it has been overshadowed by the myriad problems with the prescription-drug benefit.

The premium provision puts Medicare on a path to becoming a poverty program -- part of White House and Republican congressional efforts to eviscerate what has always been a universal entitlement. For many liberal defenders of the Medicare program, the idea of indexing Medicare to have the rich and more affluent pay more is tempting, and it seems in keeping with a progressive tax system. But it goes against the very reason that Medicare works well: The minute you start tying Medicare costs or benefits to income, you threaten to unravel the entire system by splitting it into haves and have-nots, eventually knocking the props out from the political support for Medicare itself.

There have been efforts to link Medicare to income for years, but the provisions that go into effect in January are a major new development. The premiums that will be tied to income pay for coverage of physician care. People choose whether to participate in the physician coverage, although they are automatically enrolled for Medicare's hospital benefits. Most seniors, rich and poor, sick and healthy, do enroll because it is a very good deal, with all elderly paying the same premium and receiving the same benefits.

But now that the barrier to tying premiums to income has been broken, it makes it much easier to keep ratcheting up the cost for some participants and the number of seniors who have to pay high rates. In short order many people could decide it is no longer worthwhile to buy into the voluntary benefit, leaving the program to poorer and sicker people, making the coverage much more costly to those that are in it and diminishing political support in general for Medicare. Furthermore, now that this step of linking premiums to income has been taken, Republicans who have been targeting Medicare overall will press harder for linking all Medicare co-payments, deductibles, and benefits to income as well.

Although the specific provisions that begin in January appear somewhat modest, it is clear that its architects see it as merely the first step. Currently all enrollees pay 25 percent of the premium cost for physician and other outpatient care and the government foots the remainder of the bill. But in 2007 individuals with income over $80,000 (double for couples) will pay more than this. How much more depends on their income, and their share will also increase over the next three years. But with this small initial step alone, by 2009 some people will pay 80 percent of cost, estimated at about $4,700 a year, more than triple what most others will pay. About 4 percent to 5 percent of beneficiaries are expected to initially pay higher premiums.

That this is just the beginning of an effort to shrink the program was made clear in remarks by Dr. Mark McClellan, who for the first two years of George W. Bush's administration served as the top White House health care official, then headed the Food and Drug Administration for two years before taking the helm of the Medicare program. McClellan, whose brother was White House spokesman, stepped down on October 14 as the administration's senior Medicare official. A week before his last day, McClellan met with reporters at the Christian Science Monitor and warned that policy-makers need to “take a close look at what Medicare can support for the long term.” Referencing the fact that in 2007 Medicare would be tying premiums to income, he said that “steps toward having people with the most means use their own savings and their own resources to pay for part of their care … can be a very important step toward making the program sustainable.”

Then on October 16, two days after leaving the Medicare agency, McClellan addressed a large conference of health care officials and business leaders in Washington, urging that means testing of Medicare premiums be expanded beyond provisions starting in January. (This would not cost the program political support, he argued.) And not only should the current charges for outpatient care premiums be increased, he stressed, charges to seniors for the drug program should also be indexed for income. “We need to start taking these steps now,” McClellan insisted. McClellan spoke as a senior fellow at a think tank, the AEI-Brookings Joint Center for Regulatory Studies, a forum he intends to use to press for broad health care changes.

Linking Medicare, its premiums, charges, or benefits to income is opposed by many Democrats because it undermines Medicare's universality. The next day, at the same conference where McClellan spoke, Representative Pete Stark, a Democrat from California who will head the important House Ways and Means health panel should the Democrats retake the House, criticized the proposals McClellan had endorsed. Stark warned that Medicare would be destroyed if “it loses its status as an entitlement.” Because it is a universal benefit, Stark explained, “everybody participates and they participate on a fair basis.” Linking premiums to income would cost it vital political support, he said. Stark added that if Democrats do win a majority in the House, they will hold oversight hearings on long-term financing of Medicare, with their main objective being to protect Medicare and Medicaid -- something the Republican-controlled Congress has clearly not tried to do.

Barbara T. Dreyfuss is a senior correspondent for The American Prospect.

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