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Medicare hike could also hit some in middle class

By Ricardo Alonzo-Zaldivar

Associated Press

LAST UPDATED: 10:30 a.m. HST, Apr 13, 2013

WASHINGTON >> 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.

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Anonymous wrote:
Most people have no idea how badl the situation is with regard to Medicare. Congress made a hopeless situation even worse with the addition of prescription drug coverage. When the boomers are completely on medicare, there will be only two people working for each person receiving benefits. Medicare is already broke. No way the program survives without 1) reducing benefits, 2)increasing the cost to higher income seniors and 3) more than doubling the medicare tax on workers.
on April 13,2013 | 03:17AM
Kawipoo wrote:
And then they add on Obamacare which is even a bigger disaster.
on April 13,2013 | 04:15AM
Pacej001 wrote:
Exactly. Big crash coming in the medical system and the people that caused the crash will then say "oopsie, it broke. We need national single payer medical care managed by the government."
on April 13,2013 | 07:55AM
cojef wrote:
That is the whole idea, about Obama care. Break the current system is the strategy and then have a single payer national social program. Good or Bad that is what you will get. Once the step is taken, there is no turning back. Result, inferior health service system of the likes we never seen before. By then, those of us that have enjoyed affordable and efficient health coverages will be long gone. Feel for those that have live with what is coming.
on April 13,2013 | 12:04PM
Pacej001 wrote:
Seems like it. If so, it's the most cynical, destructive political act in decades.
on April 13,2013 | 04:16PM
Pacej001 wrote:
How about adding: 4. Medicare becomes a competitive, national market and we break out of our current inefficient, wasteful medical mold. Don't know how we might do this, but I do know that the actual cost of medical services are all but impossible to find. Same thing with evaluations of the quality of care. The system is price and quality opaque to consumers so there can't be competition in either price OR quality. The exact same dynamic will exist in Obamacare, a perpetuation of our non competitive medical establishment.
on April 13,2013 | 07:53AM
Maneki_Neko wrote:
Maybe not spending trillions on useless wars would help. Maybe not having 600 overseas military bases would help. Maybe not spending like drunken sailors would help. (Apologies to drunken sailors)
on April 13,2013 | 08:33AM
mikethenovice wrote:
The Richpublican, Republicans feel that when the budget cuts affect the non-rich, that is alright, but when the cuts affect the rich, that is not OK?
on April 13,2013 | 01:42PM
Pacej001 wrote:
The subject is OBAMA"s proposal, not that of the Republicans. Chained CPI will cut benefits to EVERYONE and raise taxes on EVERYONE. This CPI adjustment hasn't been proposed in either of the Republican House's two budget submissions as far as I know. This is Obama's proposal.
on April 13,2013 | 04:21PM
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