Higher-income seniors to face new Medicare fee

WASHINGTON — Higher-income people will have to pay higher Medicare premiums than other beneficiaries next year, as the government acts to help the financially ailing program remain viable over the long term.

The surcharge is a major departure from the traditional arrangement under which older Americans have generally paid the same premium.

It is expected to affect 1 million to 2 million beneficiaries — individuals with incomes exceeding $80,000 and married couples with more than $160,000 in income. For individuals with incomes above $200,000, the premium, now $88.50 a month, is expected to quadruple by 2009.

The surcharge was established under a little-noticed provision of the 2003 law that added a prescription-drug benefit to Medicare, the national health plan for the elderly and people with disabilities.

The premium in question is for Part B of Medicare, a voluntary program that covers doctor services, diagnostic tests and outpatient hospital care.

The move has enraged many because it was adopted without public debate. A Republican-led conference committee added the measure to the Medicare bill even though neither the House nor the Senate version contained it.

Medicare faces an uncertain future because of rising health-care costs, a growing number of beneficiaries who use more services and a dwindling tax base to support the program.

Supporters of the surcharge say it makes sense for wealthy people to pay more at a time Medicare costs are soaring. But some Medicare experts worry that wealthy retirees will abandon the program and rely on private insurance instead, leaving poorer, sicker people in Medicare.

"The higher premiums could drive people with higher incomes out of Medicare," said Samuel Goodman, 73, a retiree in Derwood, Md. "Medicare would then become a welfare program, rather than a universal social-insurance program, and it would be easier to attack."

Federal officials have repeatedly said Medicare is financially unsustainable in its current form. Congress said the surcharge would begin to address fiscal challenges facing the program.

Most beneficiaries now pay the same premium for Part B of Medicare. That amount has been increasing rapidly, even without a surcharge. The standard premium has shot up an average of 12 percent a year since 2001, when it was $50 a month.

The premium is set each year to cover about 25 percent of projected spending under Part B of Medicare, which has been growing because of increases in the number and complexity of doctor services. General tax revenues pay 75 percent of the cost.

The Bush administration plans to announce the standard premium for 2007 later this month. In July, Medicare officials estimated it would be $98.40 a month. The surcharge will be phased in from 2007 to 2009.

How it will work

The surcharge for 2007 will be computed by the Social Security Administration, using income data obtained by the Internal Revenue Service (IRS) from tax returns for 2005.

If an individual has modified adjusted gross income of $80,000 to $100,000, the surcharge will be 13.3 percent, which adds about $13 to the monthly premium, for a total of about $111.50. For a single person with income of more than $200,000, the surcharge will be 73.3 percent, or about $72 a month, for a total premium of about $170.50.

When the transition is complete in January 2009, according to Medicare actuaries, the total premium for a person with income of $80,000 to $100,000 will be 1.4 times the standard premium. A person with income of $100,000 to $150,000 will pay twice the standard premium. A person with income of $150,000 to $200,000 will pay 2.6 times the standard premium, and a beneficiary with more than $200,000 of income will pay 3.2 times the standard amount.

If the basic premium rises 10 percent a year — a relatively conservative forecast — the most affluent beneficiaries will be paying premiums of more than $375 a month in 2009.

Under current law, the $80,000 threshold and the income brackets will be adjusted each year to keep pace with inflation, as measured by the Consumer Price Index.

President Bush recently proposed eliminating those annual adjustments, so more people would pay a surcharge. "This change gives beneficiaries increased participation in their health care," he said.

More than 40 million people are in Part B. Medicare officials estimate 2 percent will have to pay a surcharge next year. The Congressional Budget Office (CBO) says 5 percent of beneficiaries will be affected. The Social Security Administration puts the figure at 4 percent to 5 percent. Most people have their premiums deducted from monthly Social Security checks.

Fiscally conservative Republicans supported the surcharge, as did some Democrats, who saw it as a progressive way to finance Medicare without cutting benefits or raising payroll taxes.

Sen. Dianne Feinstein, D-Calif., said "high-income beneficiaries can afford to pay a larger share of Medicare's costs," in part because Congress has cut their taxes in recent years.

The CBO estimates the surcharge will raise $15 million from 2007 to 2013.

Advocacy groups such as AARP, the Medicare Rights Center and the Senior Citizens League oppose the change. They say high-income beneficiaries paid more into Medicare during their working lives and shouldn't have to pay more now. They also argue that the higher rates will dissuade older Americans from seeking jobs.

Even more troubling, they say, is that Congress increased the premiums without public debate.

"This was slipped in in the dead of night behind closed doors," said Robert Hayes, the director of the Medicare Rights Center.

Rep. Nita Lowey, D-N.Y., has introduced legislation to repeal the surcharge, but the bill has stalled in a House committee.

Material from McClatchy Newspapers is included in this report.