Retirees Funding Benefit Gains : Medicare Trade-Off: Less Fear but Higher Payments
The massive new expansion of Medicare that is expected to receive final approval soon from Congress does something that no other government social program has done in recent history: It makes the group that gets the benefits pay their full cost.
For Medicare recipients like Mrs. G., a retiree who is poor and has no private insurance, the plan will be a godsend. Had it been in effect when her husband died after a long illness, the program would have paid for all but about $1,900 of the $30,000 in medical bills she faced. She would not have had to take a second mortgage on her home and been left in financial ruin.
For a small fraction of the elderly, like Peter Visser of Ontario, Calif., the new catastrophic care plan promises little. He is relatively affluent and has private insurance from his former employer that would cover the bulk of the costs of any medical treatment that he and his wife might need.
Visser, who retired after 30 years as a purchasing agent at Kaiser Cement with free health insurance, probably never will get back in benefits the $700 a year he expects to pay in new premiums and income tax surcharges.
“Personally, I won’t get anything, and we as senior citizens are being assessed the entire cost,” he complained.
But the great majority of the 32 million elderly and disabled persons covered by Medicare lie between these extremes, and for them the greatest expansion of the program in 23 years will end one great fear of the future.
Although many will never suffer the catastrophic ailment that can wipe out life savings and drive a family into destitution, “none of us buys insurance in the hope or expectation that a home or an auto will be destroyed,” said Horace Deets, executive director of the 29-million-member American Assn. of Retired Persons. “We buy it for peace of mind.”
The bill containing the new Medicare benefits is expected to be signed by President Reagan after final congressional approval. It will, for the first time, provide recipients unlimited days of hospital care, a ceiling on out-of-pocket expenses for their doctor bills and coverage for prescription drugs. The benefits would be introduced in phases from 1989 through 1991.
Departure in Financing
The financing of the program is a major departure from the Great Society approach that gave rise in 1965 to Medicare, which was funded by payroll taxes on all workers and a healthy infusion of government subsidies.
Because the massive federal budget deficit now prevents the government from taking on heavy expenses for new social programs, the Medicare beneficiaries collectively will have to pick up the bill. Each will pay a higher monthly premium--$31.10, up from $24.80 now. In addition, the 40% of the elderly who have enough income to pay federal income taxes will be charged a 15% surtax on the taxes they owe, ranging up to $800 each.
Rep. Pete Stark (D-Oakland) said in a recent speech that he had explained to his mother: “I know you’re saying, ‘Gee, Pete, you’re a liberal Democrat and who’s gonna pay for all this?’ Well, I’m happy to say, Mom, you do. It won’t cost the Treasury a penny.”
Financial Protection
The major new benefit is the financial protection that will be provided against lengthy or costly illnesses suffered by few but feared by all. The government estimates that only 2.2 million Medicare beneficiaries a year will run up doctor bills beyond the $1,370 deductible that they must pay out of their own pockets.
The extra money they use will come from the pool of premiums paid by all the Medicare beneficiaries.
The plan “makes sure that people are not wiped out financially,” Deets said. Without the shield, he said, many elderly persons have been vulnerable. Particularly at risk are older women, who can face big medical bills and are less likely to have private health insurance.
A key feature of the bill is the protection against spousal impoverishment, which can occur when a husband or wife must go into a nursing home--even though most nursing home costs are not covered by the legislation.
Currently, only after the couple’s savings have dwindled to $1,000, does the patient qualify for Medicaid, the federal welfare program that pays nursing home bills, which average $22,000 a year. The spouse at home normally is allowed to keep only about $300 a month in family income.
The new law would allow the spouse to keep $786 a month for living expenses and a minimum of $12,000 in savings and other financial assets. Each state would set its own maximum ceiling for these assets, up to $60,000.
(Although this would help the elderly living in most states, in California it would leave couples with assets of more than $120,000 worse off. Under the state’s community property law, whose Medicaid regulations would be superseded by the new program, a spouse may now keep half the assets.)
“The provision means that our members don’t have to be totally impoverished,” said Michele Lord, public policy director for the Older Women’s League.
To Pay for Drugs
For those with chronic heart disease, crippling arthritis, severe ulcers and other persistent conditions, the legislation will be a big financial boost because it will pay for prescription drugs. The drug benefit begins in 1991, with the government paying 50% of the cost after the beneficiary has spent $600. About 5.4 million Medicare recipients have big drug bills each year and will receive help.
The people promised the most by the new plan are the 2 million elderly who live below the poverty line but earn too much to qualify for Medicaid, the federal medical program for the poor. Medicare would now pay all their premiums and deductibles, so they would receive free care, as Medicaid recipients now do.
Considering the breadth of the new benefits, making the program pay for itself was not easy for its legislative architects.
Modest Increase
The increase in Medicare premiums is relatively modest, and 60% of the beneficiaries will pay only this sum, so the heavy burden of the program’s costs was placed on those who have enough income to pay federal income taxes.
When they are filling out their 1989 tax returns in April, 1990, those taxpayers will face a new line directing them to add an amount equal to 15% of the federal income taxes they owe. The surcharge would begin at income of about $10,000 for a single person and $20,000 for a couple. For a single person, income of about $20,000 would mean a surcharge of about $180. The top rate--for a person with income of $50,000 or more--would be $800.
HOW NEW MEDICARE LAW WILL WORK
Hospital Care
Current Law
Patient pays $540 for first day. Free care next 59 days. Then patient pays $130 a day.
New Law
Starting in 1989, patient pays $564 for first day. All following days free. The first-day charge rises annually with medical inflation. Doctor bills
Current Law
Patient pays first $75 a year and 20% of additional fees. Doctor may charge fees higher than Medicare standards and patient is responsible for the difference.
New Law
Starting in 1990, patient continues to pay first $75 and 20% of additional fees, but when patient’s share reaches $1,370, Medicare pays all additional charges for the year. Doctor still permitted to charge fees beyond Medicare standards, and patient must pay the difference. Prescription drugs
Current Law
No coverage
New Law
Starting in 1991, patient pays first $600 a yearand 50% of additional charges; Medicare pays the rest. In 1992, patient pays $650 and 40% of additional charges. In 1993, patient pays $710 and 20% of charges. After that, the deductible continues rising with medical inflation, but the co-payment remains at 20%. Payments
Current Law
Beneficiaries pay $24.80 a month for Part B coverage for physicians’ payments.
New Law
Starting in 1989, beneficiaries pay $31.10 a month for Part B coverage plus new extended hospital-care coverage.
In addition, starting with 1989 income, the 40% of the elderly who pay federal income taxes will pay a 15% surcharge up to a maximum of $800 a year for single taxpayers and $1,600 for couples. Elderly taxpayers will first feel this bite in April, 1990, when they file their 1989 income tax returns. Spousal protection
Current Law
States set income allowances for spouse of someone in a nursing home.
New Law
Starting in October, 1989, the spouse remaining at home may keep at least $786 a month of family income. Minimum of $12,000 in savings and assets protected from nursing home bills for use by spouse at home. Maximum in protected assets is $60,000. This rule supersedes the California law that divides assets in half. Respite care
Current Law
No coverage
New Law
For someone hired to care for a frail person at home, Medicare will pay for 80 hours of care a year after the elderly person has reached the $1,370 cap on doctor bills or the $600 deductible on drug costs. Program starts in 1990. Hospice care
Current Law
210 days of coverage for those with terminal illnesses.
New Law
Unlimited days of coverage in terminal cases. Mammography
Current Law
Coverage only when cancer is suspected.
New Law
Starting in 1990, Medicare will pay $50 toward cost of procedure in preventive medicine.
Protection for the poor
Current Law
No protection
New Law
Government will pay all deductibles and co-payments for Medicare beneficiaries with incomes below the poverty line. This will be phased in over four years. All pregnant women and children under 1 year old living below the poverty line will be enrolled in the Medicaid program.
