The president’s budget proposals released last week call for more seniors to pay more money for their Medicare benefits. While the president’s plan to require beneficiaries to pay higher premiums came as no surprise to Washington insiders, it probably was to people who will feel the pinch. Seniors with higher incomes are already paying larger premiums, but even many in this group don’t know that they are.
To understand Obama’s proposed changes, which would, of course, save money for the government, some background helps.
Beginning in 2007 about five percent of all beneficiaries—some two million Americans—started to pay more for their Part B Medicare benefits—the ones that cover outpatient care and doctors’ services. Before that everyone on Medicare paid the same Part B premium, which was calculated to cover 25 percent of the costs for providing those health care services. The government covered the rest.
Since then individuals with an adjusted gross income above $85,000 and families with incomes over $170,000 pay more. Instead of paying a premium pegged at 25 percent of the program costs, premiums are designed to cover 35, 50, 65, or 80 percent of the program’s cost depending on beneficiary income. Income-based monthly premiums for Medicare Part B currently range from $146.90 to $335.70.
Beginning in 2017, the president would like about 25 percent of all beneficiaries to pay higher premiums, and there would be nine premium tiers instead of four. Premiums for those with the very highest incomes will be calculated so they cover 90 percent of program costs.
Would all these people really have high incomes? Obama’s proposal also changes the meaning of what is a higher income. If Obama’s latest proposal is fully phased in, people who are considered middle income today would pay higher premiums, says Tricia Neuman, a vice president of the Kaiser Family Foundation. Neuman analyzed a previous Obama proposal and found that once the proposal was fully in place—after 20 years—people with incomes of about $47,000 in 2012 dollars would pay more. That’s pretty middle class for Medicare beneficiaries considering that half of them have incomes of less than $22,000 and less than $53,000 in savings.
“Higher” income seniors would also get hit with higher premiums for their Medicare Part D prescription drug benefits under Obama’s recent proposal. There was a time when Part D premiums varied only by the drug plan a senior chose. Seniors enrolled in the same plan within the same region of the country paid the same premiums. But last year about three percent of beneficiaries paid the higher premiums. By 2019 about 8 percent would pay the higher Part D premium under current law.
The president’s proposal does raise the question about how seniors with
fairly low incomes will be able to afford higher premiums over time especially as income usually declines in old age. In testimony sent to a House Ways and Means subcommittee earlier this year, Medicare advocacy groups told Congress paying higher premiums would be difficult for many seniors.
“What strikes me is how little the average person understands that their costs are going up,” says Bonnie Burns, a Medicare specialist with California Health Advocates. “If people were aware of it, they’d be upset.”
Not only are beneficiaries unaware they are or will have to pay higher premiums, they don’t know that the government will prohibit their Medigap policies from covering as much, says Burns. That would leave them exposed to high out-of-pocket costs—the very thing they try to avoid by buying Medigap insurance.
The president has even more changes in store for people on Medicare. Let’s hope seniors are watching.