Can't raise taxes? Hike Medicare premiums instead

December 13, 2011 - 5:40 PM

WASHINGTON (AP) — Republicans may have found a way to squeeze more money out of well-to-do Americans without raising their taxes.

A year-end economic package expected to gain House approval Tuesday prescribes a Medicare premium increase for "high-income" beneficiaries. Although the bill faces a veto threat from the White House, that specific provision may turn out to have staying power.

"High income" for Medicare beneficiaries currently means those making $85,000 and above for individuals, or $170,000 for families.

Just the top 5 percent of Medicare recipients fall into those income brackets, causing them to pay higher premiums for outpatient and prescription coverage. The legislation would expand that over time so the highest-earning one-fourth of seniors pay added premiums.

Millions who don't consider themselves wealthy would end up paying more, in some cases several hundred dollars more a month.

AARP, the seniors lobby, says the premium increases are tantamount to a new tax. In the Democratic-led Senate, there's not much enthusiasm.

But the plan is modeled on a proposal that President Barack Obama submitted earlier this year to congressional debt negotiators, when he was seeking a "big deal" to cut federal deficits. Continuing pressure to curb spending means the proposal eventually could become the law of the land, even if there's no consensus now.

"This is an idea that seems to have some traction," said Tricia Neuman, a Medicare expert for the nonpartisan Kaiser Family Foundation.

It's also creating a lot of confusion about who is wealthy and who is not.

For example, when Obama talks about raising taxes on the rich, he means individuals making more than $200,000 a year and families above $250,000.

But his health care law fixed the level for paying "high-income" Medicare premiums at the current $85,000 and above for an individual, $170,000 for families.

And the new Republican plan would drop the thresholds to $80,000 for an individual and $160,000 for families.

"If we're considering raising taxes on those with incomes above $250,000, then it seems to me very awkward to raise Medicare premiums on those with much lower incomes," said John Rother, head of the National Coalition on Health Care, an advocacy group.

Baby boomers just signing up for Medicare are more likely to be affected than long-term retirees, since incomes tend to be higher for the newly retired.

AARP calls the proposed premium increases a tax hike. "Most of the time, when you have a payment due to the government because of your income, we call it a tax," said lobbyist David Certner. "It's a form of a tax." High-earning workers already pay more in Medicare payroll taxes, he pointed out.

No way it's a tax, say Republicans.

Taxpayers subsidize three-quarters of the cost of Medicare premiums for the typical retiree. Reducing the subsidy for those who can afford to pay more is not the same thing as raising taxes, they contend.

"The proposal doesn't raise taxes," said Michelle Dimarob, spokeswoman for House Ways and Means Chairman Dave Camp, R-Mich. "The provision simply adjusts the subsidy they receive."

The premium increases are to help pay for legislation that would prevent the Jan. 1 expiration of payroll tax cuts for workers and extra benefits for the long-term unemployed, while also staving off a steep cut in Medicare payments to doctors. With time running short, lawmakers of both parties and Obama are still far apart on key aspects.

Tax or not, higher Medicare premiums mean less money in the pockets of those who have to pay. Currently the high-income premiums start at 35 percent of the cost of Medicare's outpatient and drug coverage for individuals making $85,000 year and rise to 80 percent of the cost at the very top income brackets.

Next year, a typical Medicare recipient will pay $131 a month for outpatient and drug coverage combined, according to Kaiser. Those paying the high-income premiums will pay from $183 to $417. That means beneficiaries at the highest income levels would pay nearly $300 a month more.

The House GOP plan would increase the high-income premium by 15 percent in 2017 and lower the thresholds at which the higher fees kick in.

Most significantly, it freezes those income thresholds indefinitely, until one-fourth of Medicare recipients are paying "high-income" premiums. It's unclear how long that would take, but currently only about 2 million out of 47 million Medicare beneficiaries pay higher premiums. Eventually that number could easily surpass 10 million.

The GOP proposal reduces taxpayer spending on Medicare by $31 billion over 10 years; Obama's version saved about $20 billion.

"There's a lot of interest in asking higher-income people on Medicare to contribute more," said Neuman.