Medicare and Means Testing

Seniors who have higher income will have to pay more for their Medicare.  This seems to be one part of the plan for putting Medicare on a stronger financial footing.  Here is what the National Committee to Preserve Social Security & Medicare has to say about that.

Congressional deliberations about how to address the nation’s long-term deficit, as well as how to pay for preventing a reduction in payments to physicians, include proposals for means testing Medicare – that is, requiring higher-income beneficiaries to pay more of Medicare’s costs.

Higher-Income Medicare Beneficiaries Already Pay More

Medicare Part B, which covers physician and outpatient services, has been means tested since 2007 for beneficiaries at the $85,000 and above income level for an individual, and $170,000 and above for a couple. In 2012, higher-income beneficiaries are paying premiums ranging from $139.90 to $319.70 per month, depending on their level of income, compared with the standard premium of $99.90.

The number of beneficiaries subject to this means-tested premium is expected to increase from 2.4 million in 2011 to 7.8 million in 2019, an increase from 5 percent to 14 percent of Part B enrollees. Medicare Part D, the prescription drug benefit, is also means tested with the same income thresholds.

The Medicare Hospital Insurance (Part A) is financed with payroll taxes of 1.45 percent on employees, matched by employers, with self-employed individuals paying the full 2.9 percent. Since 1994, this payroll tax has been levied on all covered wages and self-employment without a limit. Therefore, the higher an individual’s earnings, the more he or she will contribute to Medicare Part A during their working years.

In addition, the Part A payroll tax will increase in 2013 by an additional 0.9 percent on taxpayers earning above $200,000 for an individual and $250,000 for a couple. These same income thresholds will also trigger a 3.8 percent surtax on unearned income, such as interest, dividends and capital gains, which will be applied to Medicare.

NATIONAL COMMITTEE POSITION

Additional means testing would undermine the social insurance nature of Medicare and ultimately raise costs for middle and lower-income seniors who depend on it. If mean-testing results in Medicare becoming increasingly unfair to higher-income beneficiaries, they may opt out and purchase their own policy on the private market. The departure of higher-income beneficiaries, who tend to be younger and healthier, would increase overall costs and reduce public support for the program.

It is also important to keep in mind that over the past decade Medicare spending per enrollee has grown more slowly than private health insurance spending. Proposals which shift costs to beneficiaries, such as means testing and increasing the age of eligibility, fail to address the underlying reason for growth in Medicare spending – the increase in general health care inflation nationwide.

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