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A Realistic Step for Medicare

Senate acts for sustainability, but major hurdles remain

June 29, 1997

In a show of unusual political courage and decisive bipartisanship, the Senate last week voted 70 to 30 to increase monthly Medicare premiums for better-off Americans. It would also lift the eligibility age for benefits to 67, but gradually, over 30 years. Whether either of these provisions will survive in the final bill negotiated by House and Senate conferees is uncertain. What is unarguable is that the Senate's action marks a realistic step toward a more sustainable Medicare system, one whose survival will not depend on budget-busting subsidies from the Treasury.

Medicare serves 38 million people, 34 million age 65 and older and 4 million disabled. Under the Senate plan, the premiums for Part B, which covers physicians' fees, would rise for those with higher incomes. About 5% of the elderly would be affected. Why are higher fees needed? By law, 25% of the costs of Part B should be paid by beneficiaries through monthly premiums, currently just under $44. But those premiums are not permitted to rise faster than the annual cost-of-living adjustments made in Social Security. Since medical expenses have for years risen far beyond the ordinary rate of inflation, premiums have come to cover a declining share of costs. The difference is paid out of general revenues.

The bipartisan Concord Coalition has projected that in less than 30 years, when the ranks of Medicare beneficiaries have been swollen by tens of millions of baby boomers, this one program will cost a staggering $850 billion.

Single people with incomes under $50,000 or couples earning less than $75,000 would not be affected by the proposed premium increases. For the more affluent, yearly premiums would go up by $32 for each $1,000 in income. The maximum individual premium would be $2,160. That's four times what every beneficiary, regardless of income, now pays. In its first five years the higher premium schedule would save the federal government about $4 billion, some of which could be used to help pay Medicare premiums for those elderly Americans who are near the poverty level. As the first baby boomers became eligible for Medicare in 2010, savings would increase. Savings from the higher eligibility age would be about about $10 billion from 2003 to 2007, increasing steadily after that.

So-called means-testing in entitlement programs has long been resisted by lobbying groups for retirees. But any realistic assessment of Medicare costs shows inescapably that its time has arrived. It is a reasonable way to bring a measure of progressivity into a program that is threatened by overwhelming cost increases. If no changes are made, says the Concord Coalition, the deficit in the Medicare program as a whole--hospital coverage and doctors' fees--will exceed $1.6 trillion by 2025. Medicare and Social Security will not be allowed to collapse. But the bills for keeping them going will rise as an aging population expands. The Senate, to its credit, has taken one important step toward responsible reform.

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