Can't raise taxes? Hike Medicare premiums instead

December 13, 2011 - 10:20 AM

WASHINGTON (AP) — Raising taxes on millionaires may be a non-starter for Republicans, but they seem to have no problem hiking Medicare premiums for retirees making a lot less.

The House is expected to vote Tuesday on a year-end economic package that includes a provision raising premiums for "high-income" Medicare beneficiaries, now defined as those making $85,000 and above for individuals, or $170,000 for families.

Some would pay as much as several hundred dollars a month additional for Medicare outpatient and prescription coverage. Millions who don't consider themselves wealthy would also end up paying more.

Just the top 5 percent of Medicare recipients currently pay higher premiums, a change that took effect a few years ago. The new GOP proposal would expand that over time to include the highest-earning one-fourth of seniors.

On Monday the White House was mum on the Republican Medicare proposal, while AARP said it's tantamount to a new tax. In the Democratic-led Senate, there's not much enthusiasm.

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's outpatient and prescription coverage for the typical retiree. Reducing a 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."

To back their argument, Republicans are circulating a letter from anti-tax activist Grover Norquist in support of the broader bill containing the Medicare provision.

The premium hikes 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 are still far apart on key aspects of the package.

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 would easily surpass 10 million.

The GOP proposal would reduce 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.