Tax Medicare Benefits or require beneficiaries to pay 50% of Part B costs rather than 25%

2013

A recent opinion piece in the New York Times suggests one way to solve the Medicare fiscal crisis is to tax the value of benefits received. You have to admit this is creative thinking even if it sounds bizarre. There is no doubt on average beneficiaries receive more in benefits than they pay in over a lifetime, but that might be true for other forms of insurance as well. And what about the person who doesn’t get back more, do they get a rebate?

An alternative suggestion is to charge beneficiaries 50% of the cost of Part B rather than the current 25%. [see the note below] While there is sound logic for that, even the hint of such a change would have the AARP organizing a million walker march on Washington.

Given a significant number of Americans on Medicare and Social Security pay little or no income tax in the first place because of their low income, one wonders how such an idea would work. Is he suggesting a tax on everyone or just an added tax on the proverbial “wealthy?”

Take a look at the full article yourself and let’s have a few comments on this one.

According to a May 2013 poll by the Harvard School of Public Health, two-thirds of people believe their lifetime taxes and premiums at least cover the cost of all their Medicare benefits; 27 percent believe their benefits equal their contributions, while 41 percent think they get back fewer Medicare benefits than they paid for.

In reality, almost everyone gets back far more in Medicare benefits than they ever pay into the system. What follows below are new data from the Urban Institute on lifetime benefits and taxes for those with average lifetime wages. The figures are a “present value” calculation – all future benefits discounted to today – in inflation-adjusted 2013 dollars.

via Taxing Medicare Benefits – NYTimes.com

Here are some suggested ways to tax Medicare benefits from the Urban Institute.

Medicare is a tough nut to crack and all ideas are welcome, but these free thinkers need to consider the macro picture. Today the average person is struggling to fund retirement, fund education, pay health care bills and more. Going forward meeting all those goals while taxes to pay for Social Security and Medicare are going up will be next to impossible. While employment based benefits disappear, individual responsibility increases and right or wrong the average person simply can’t handle that; fiscally or otherwise.

NOTE When Medicare began in 1966, the Part B monthly premium paid by beneficiaries was set at a level to finance 50% of Part B costs; general revenues financed the remainder. Legislation enacted in 1972 limited annual premium increases. As a result, beneficiary contributions dropped to below 25% of program costs by the early 1980s. Since the early 1980s, Congress regularly voted to set Part B premiums at levels to cover 25% of program costs. The Balanced Budget Act of 1997 (BBA 97) permanently set the Part B premium at 25% of program costs. Certain low-income beneficiaries are entitled to assistance in paying their Part B premiums. Beginning in 2007, certain high income Medicare enrollees began paying a higher percentage.