October 25, 2014

CONCORD COALITION ASKS: “WHAT HAPPENED TO MEDICARE COST CONTROL?”

WASHINGTON -- With Congress debating plans to greatly expand Medicare by adding a prescription drug benefit, The Concord Coalition said today that trade-offs should be made to help rein in the program's already unsustainable long-term cost. In that regard, The Concord Coalition praised Senators Dianne Feinstein (D-CA), Don Nickles (R-OK), Lincoln Chafee (R-RI) and Lindsey Graham (R-SC) for proposing an amendment to the Senate's prescription drug bill that would increase the Supplemental Medical Insurance (SMI) premium for upper income beneficiaries.

“This reform would generate only a tiny fraction of the savings needed to pay for the addition of a prescription drug benefit, to say nothing of closing Medicare's existing funding gap - a staggering $13 trillion over the next 75 years. It would, however, establish a critical principle: “modernizing” Medicare for the 21st Century means more than adding politically attractive benefits. It also means making politically hard choices to ensure Medicare's fiscal viability for future generations. Raising the SMI premium, which is nothing more than a reduction in the government subsidy for upper income beneficiaries, is among the easiest of the ‘hard' choices,” said Concord Coalition Executive Director Robert Bixby.

Currently all beneficiaries pay only 25 percent of Part B program costs; the remainder comes from general revenues. The basic issue is one of fairness. It makes no sense for a working couple with two children, and a $50,000 income (about the national median for family households) - trying to buy a home, trying to find affordable health insurance, trying to save for their kids' education, and trying to put aside something for retirement - to have to pay 75 percent of the Medicare premium for a retired couple whose income exceeds $150,000 a year (far above the national median.)


Federal subsidies should not be going to the well-off, particularly when Medicare is facing strong fiscal challenges and other programs in the budget are being forced to fight for every last dime. The concept of phasing out federal subsidies for upper income individuals is well established. Indeed, the tax bill recently passed by Congress phases out eligibility for child tax credits as families' incomes rise. If means-testing is acceptable for working families, it should be acceptable for retired seniors. Applying this principle to Medicare Part B would not only be consistent with other federally subsidized programs, it would be an equitable response to SMI's unsustainable growth.

Another logical cost saving reform is to match the Medicare eligibility age to the eligibility age for full Social Security benefits. Changing demographics are a given. With or without new benefits, the growing number of Medicare beneficiaries will put substantial strain on the budget. According to the Medicare Trustees, the cost of the program will rise from 2.6 of the economy (GDP) to more than 9 percent over the next 75 years. The Congressional Budget Office estimates that 30 percent of this cost growth is attributable to the aging of the population.

In 1983, Congress recognized that changing demographics justified a gradual increase in the eligibility age for full Social Security benefits from 65 to 67 by 2025. The same demographics that led Congress to raise the eligibility age for Social Security also justify an increase in the eligibility age for Medicare. Both programs face swelling numbers of beneficiaries as the population ages, and both are supported by the payroll taxes of a work force with shrinking numbers of workers per beneficiary. With Americans living longer, it is common sense to change Medicare along with the changing demographics. The earlier that action is taken, the better -- both to improve Medicare's fiscal outlook for the baby boom retirement years and to give future beneficiaries time to plan.

The Concord Coalition is a nonpartisan, grass roots organization dedicated to balanced federal budgets and generationally responsible fiscal policy. Former U.S. Senators Warren Rudman (R-NH) and Bob Kerrey (D-NE) serve as Concord's co-chairs and former Secretary of Commerce Peter Peterson serves as president.

 

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