Retired city worker Sheila Pugach lives in a modest home on a quiet street in Albuquerque, N.M., and drives an 18-year-old Subaru.
Pugach doesn’t see herself as upper-income by any stretch, but President Barack Obama’s budget would raise her Medicare premiums and those of other comfortably retired seniors, adding to a surcharge that already costs some 2 million beneficiaries hundreds of dollars a year each.
Due to the creeping effects of inflation, 20 million Medicare beneficiaries also would end up paying higher “income related” premiums for their outpatient and prescription coverage over time.
Obama administration officials say Obama’s proposal will help improve the financial stability of Medicare by reducing taxpayer subsidies for retirees who can afford to pay a bigger share of costs. Congressional Republicans agree with the president on this one, making it highly likely the idea will become law if there’s a budget deal this year.
But the way Pugach sees it, she’s being penalized for prudence, dinged for saving diligently.
It was the government, she says, that pushed her into a higher income bracket where she’d have to pay additional Medicare premiums.
IRS rules require people age 70-and-a-half and older to make regular minimum withdrawals from tax-deferred retirement nest eggs like 401(k)s. That was enough to nudge her over Medicare’s line.
“We were good soldiers when we were young,” said Pugach, who worked as a computer systems analyst. “I was afraid of not having money for retirement and I put in as much as I could. The consequence is now I have to pay about $500 a year more in Medicare premiums.”
Currently only about 1 in 20 Medicare beneficiaries pays the higher income-based premiums, which start at incomes over $85,000 for individuals and $170,000 for couples. As a reference point, the median or midpoint U.S. household income is about $53,000.
Obama’s budget would change Medicare’s upper-income premiums in several ways. First, it would raise the monthly amounts for those currently paying.
If the proposal already were law, Pugach would be paying about $168 a month for outpatient coverage under Medicare’s Part B, instead of $146.90.
Then, the plan would create five new income brackets to squeeze more revenue from the top tiers of retirees.
But its biggest impact would come through inflation.
The administration is proposing to extend a freeze on the income brackets at which seniors are liable for the higher premiums until 1 in 4 retirees has to pay. It wouldn’t be the top 5 percent anymore, but the top 25 percent.
“Over time, the higher premiums will affect people who by today’s standards are considered middle-income,” explained Tricia Neuman, vice president for Medicare policy at the nonpartisan Kaiser Family Foundation. “At some point, it raises questions about whether (Medicare) premiums will continue to be affordable.”
Required withdrawals from retirement accounts would be the trigger for some of these retirees. For others it could be taking a part-time job.
One consequence could be political problems for Medicare. A growing group of beneficiaries might come together around a shared a sense of grievance.
“That’s part of the problem with the premiums – they simply act like a higher tax based on income,” said David Certner, federal policy director for AARP, the seniors lobby.
“Means testing” of Medicare benefits was introduced in 2007 under President George W. Bush in the form of higher outpatient premiums for the top-earning retirees. Obama’s health care law expanded the policy and also added a surcharge for prescription coverage.
The latest proposal ramps up the reach of means testing and sets up a political confrontation between AARP and liberal groups on one side and fiscal conservatives on the other. The liberals long have argued that support for Medicare will be undermined if the program starts charging more for the well-to-do. Not only are higher-income people more likely to be politically active, but they also tend to be in better health.
Fiscal conservatives say it makes no sense for government to provide the same generous subsidies to people who can afford to pay at least some of the cost themselves. As a rule, taxpayers pay for 75 percent of Medicare’s outpatient and prescription benefits. Even millionaires would still get a 10 percent subsidy on their premiums under Obama’s plan. Technically, both programs are voluntary.
“The government has to understand the difference between universal opportunity and universal subsidy,” said David Walker, the former head of the congressional Government Accountability Office. “This is a very modest step toward changing the government subsidy associated with Medicare’s two voluntary programs.”
It still doesn’t sit well with Pugach. She says she’s been postponing remodeling work on her 58-year-old house because she’s concerned about the cost. Having a convenient utility room so she doesn’t have to go out to the garage to do laundry would help with her back problems.
“They think all old people are living the life of Riley,” she said.
Obama Claimed It Wouldn’t Add a Dime
(Photo: Reuters/Jonathan Ernst)
(L-R) Republican U.S. Senators Michael Lee (R-UT), John Cornyn (R-TX), Lindsey Graham (R-SC), Jeff Sessions (R-AL) and Jon Kyl (R-AZ) go over their notes as they wait to question U.S. Attorney General Eric Holder (not pictured) as he testifies before the Senate Judiciary Committee on Capitol Hill in Washington, June 12, 2012.
The Patient Protection and Affordable Care Act, passed three years ago with President Obama saying it would not add one dime to the federal deficit, is now projected to add $6.2 trillion to the deficit and inflict severe cuts to Medicare and Medicaid payments to hospitals and physicians.
When Obamacare passed in March 2010, many Americans believed they would soon receive the same lifetime healthcare benefits as every member of Congress, and without incurring additional costs for themselves, their families or their businesses. The truth, however, is the Government Accountability Office (GAO) anticipates the Obamacare entitlement program will place a heavy burden on the U.S. economy, which currently has a national debt of $16.7 trillion.
According to the American Enterprise Institute (AEI), a conservative think tank, patients and their physicians are going to feel the full impact of the costs associated with Obamacare, and not only by adding $6.2 trillion to the national debt, but in ways that are far more tangible to families, and especially senior citizens.
In his analysis of the GAO’s report, Chris Conover, an adjunct scholar at the American Enterprise Institute, notes the current law already requires “Medicare to slash physician fees by 25 percent next January (under the Balanced Budget Amendment).” He adds that by 2030, Medicare payments to physicians will be 60 percent less than payments received from patients who have private health insurance plans.
Likewise, Conover shows payments to hospitals that provide services to Medicare and Medicaid patients will be paid 61 percent less for procedures than payments from private health insurers; and physicians eventually will be paid 74 percent less under Medicare than private insurance.
“First, cuts of that magnitude will create huge problems of access to care,” Conover said in a statement to The Christian Post on Friday.
“The Medicare actuary projects that 40 percent of Part A providers will be operating in the red by the year 2050. No facility can operate in the red year after year after year. So many of these facilities will close entirely, meaning patients will have to travel longer and farther to get care. This will disproportionately hurt low-income patients for whom transportation barriers are an issue.”
He continues, “For the facilities that stay open, quality clearly cannot be as high for a facility whose payment rates are 61 percent lower than for private pay patients. Just as Medicaid patients have already experienced, there will be much longer waiting times for care, visits will be much shorter and less informative.
According to Conover, the least-advantaged will feel the greatest impact by these changes in healthcare since they’re the ones most in need of patient education regarding lifestyle choices. “Far more patients will get turned away entirely, meaning that it will increase the burden on safety net facilities whose emergency rooms will become even more overloaded as the private delivery system essentially shrinks.”
“There also is likely to be cost-shifting back onto private patients as providers seek to offset their losses on public patients by raising their charges for paying patients. But this will merely expand the payment gap between private and public patients,” he added.
Conover told CP it’s important for Americans to understand that the bad news won’t be limited to public patients. “Crowded emergency rooms are a problem for the entire community, both from the standpoint of costs and being able to access critical care when needed.”
He also emphasized that contracts negotiated in the exchanges tend to be based on Medicare payment rates.
“As Medicare payments decline, some people in the exchanges in the least expensive plans may discover that they, too, are less desirable customers to some providers since their plans are limited to Medicare payment rates,” Conover said.