Medicare changes are coming-there is already some agreement

2013

Medicare continues to be the major budget buster and will come under close scrutiny during the upcoming budget talks. This time there is a good chance that changes will be made affecting not only future beneficiaries but current Medicare beneficiaries as well. There is agreement between Republican and Democratic leaders on some of the basic issues.

Increase the Part B premium paid by “wealthy” beneficiaries and change the definition of “wealthy.”

Under current law, those with incomes of $85,000 or more ($170,000 couples) pay more for Part B. Based on income these beneficiaries pay not 25% of the premium which is the normal contribution, but instead pay between 35 and 80%. The higher income folks also pay an additional premium for Part D of Medicare.

Obama’s fiscal 2014 budget proposal would increase the range of premiums for higher income beneficiaries to between 40 percent and 90 percent. His plan would also freeze the income thresholds for those higher premiums until a quarter of beneficiaries paid them, the result of inflation pushing more recipients into those income levels.

In a 2012 analysis, the Kaiser Family Foundation found that if the proposal had been implemented that year, individuals with incomes at or above $47,000 ($94,000 for couples) would be paying higher premiums. this means that a lot of non-wealthy Americans will pay more.

Medigap Changes

The theory goes that the more insurance you have paying your health care bills, the less you care about health care costs and hence you will be inclined to use more health care. Many Medicare beneficiaries purchase supplemental coverage that reimburses Medicare deductibles and coinsurance leaving little or no out-of-pocket costs. I find it strange that people would spend $200 to $300 a month for such coverage when before they had Medicare chances are good their insurance included deductibles and co-insurance that was not reimbursed. Nevertheless, many seniors rely on these plans to shield them from unanticipated costs.  Unfortunately, Medicare does not include an out-of-pocket limit.

Starting in 2017, the president’s budget plan would require new beneficiaries who purchase more generous Medigap plans to face a surcharge of approximately 15 percent of the average Medigap premium.  Paul Ryan and other Republicans have expressed support.

Higher Beneficiary Cost Sharing: Obama’s plan includes a higher Part B deductible for those enrolling in 2017 and thereafter as well as a new copayment for home health services. Republicans may show interest as well.  What private insurance of any kind has a $147 deductible, a deductible that actually decreased in 2013? Not only should the deductible be raised gradually, it should be indexed at least to the Social Security COLA. If the Part B deductible had been adjusted for general inflation, not even medical inflation, since inception, it would be $371 today

Seniors advocates say such a change is additional cost to people already struggling on fixed incomes. On other hand, Medigap coverage pays the deductible in many cases meaning such a change is really shifting costs to insurance companies.

Premium Support/Higher Eligibility Age: Ryan’s fiscal budget plan includes both a gradual increase of the Medicare eligibility age (from 65 to 67) as well as a “premium support” plan that would give beneficiaries a set amount of money to select coverage from private plans featured on a Medicare “exchange” that would include the traditional Medicare program as well as private plans.

The changes would apply only to individuals now 54 and younger when they entered Medicare. Both ideas are opposed Democrats. But Democratic opposition in light of Obamacare is questionable.

What is the big deal if Medicare eligibility changes to age 67?  Workers will either continue working (which many workers will be doing in any case), or obtain coverage through a marketplace plan, just as a 63-year-old will do today?  Democrats are the big boosters of competition among insurance companies, so why is competition among insurers good for Americans under age 65, but not good for older Americans?  The fear, of course, is that the premium support will not increase sufficiently to fully support the Medicare option, but that will be up to Congress and should be based on affordability.  Furthermore, the defined contribution approach is quickly becoming the standard among employers for the same reasons it should be considered for Medicare.

Who knows where this will end, except that there will be changes, there must be changes.  The problem is that some policymakers and advocates develop their positions  looking backward.  The average income of all current retirees on Medicare is not relevant for long-term future changes. The average monthly Social Security benefit is not relevant for prospective changes. We should consider the average benefit for new beneficiaries is in 2013, we should be asking what the income replacement ratio from all sources is for individuals retiring in 2013.

The Affordable Care Act says health care is affordable if the cost is no more than 9.5% of an individual’s income.  That means $316 per month for an individual making $40,000 a year, but when that same person turns 65, they are only expected to pay $105. We need to update our thinking about not only the cost, but the entire design of Medicare, especially in light of the changes to our health care system brought about by Obamacare  and the significant changes happening in the workplace.

Related articles

• Tax Medicare Benefits or require beneficiaries to pay 50% of Part B costs rather than 25% (quinnscommentary.com)
• Is Medicare Advantage the same as Medigap? (consumerreports.org)