Democrats Seek to Stem Protests of Hike on Elderly Affluent : Backlash Grows Over New Medicare Tax

Democratic leaders in Congress rushed Thursday to answer rising protests against a new law that would pay for Medicare coverage of “catastrophic” illnesses partly by raising income taxes on affluent elderly people.

In an unusual move not long after passage of the legislation, Chairman Dan Rostenkowski (D-Ill.) of the House Ways and Means Committee issued a “Dear Colleague” letter to other members of Congress in defense of the landmark measure.

Rostenkowski called the new expansion of Medicare “a hell of a bargain” and said any attempt to reduce the taxes must be accompanied by cuts in benefits as well.

But he and other supporters of the law face strong opposition and--unless the backlash can be contained--it could signal a major confrontation in the next session over a bill that was passed overwhelmingly last June and signed into law by President Reagan.

Rep. Bill Archer (R-Tex.), the ranking Republican on the Ways and Means Committee who usually agrees with Rostenkowski on major issues, is prepared to introduce a bill to revise the new law shortly after Congress convenes Jan. 3. Other members of Congress with less influence and seniority have said they want to repeal it outright.

The legislation was one of the few accomplishments of the 100th Congress hailed by the Democratic leadership and Vice President George Bush, who specifically endorsed the now-controversial pay-as-you-go financing system.

The law marked the first time that the cost of providing new Medicare benefits would be paid for by those who receive them, partly by a $4 increase in the monthly premium and mainly by a surtax on income tax payments of senior citizens.

Even before the November election, however, protests began against the new law, mainly on grounds that it would raise income taxes by as much as $800 a year starting in 1989 for about 40% of Medicare beneficiaries with incomes ranging from $14,000 to $42,000 a year.

Rep. Harris W. Fawell (R-Ill.) is convening a meeting of the law’s opponents next week in an effort to agree on strategy for repealing it. “I have not received a single letter or call in support since the bill passed,” said Fawell, one of 72 House members who voted against the law on final passage.

An aide to Rostenkowski on the Ways and Means Committee said it is too soon to tell how much of a backlash existed because of the complexity of the new law and confusion among Medicare beneficiaries about how it will be financed.

“It’s hard to know whether we’re facing some kind of a firestorm,” the aide said. “We do know members (of Congress) are getting hit, some more than others. We’re concerned enough to be sending out the ‘Dear Colleague’ letter.”

But an aide to Archer said the battle has just begun, adding: “Once people feel the (tax) bite, then the real screaming will begin.”

In his letter, Rostenkowski said the new law would limit out-of-pocket payments for Medicare services to $2,000 a year, reducing fears that prolonged illness would bankrupt older people. For the first time, the law will help to cover the cost of prescription drugs, starting in 1991, after a $600 deductible, he said.

Details of Increases

On the financing issue, Rostenkowski said increases in the monthly Medicare Part B premium would pay for 37% of the costs, starting with a $4 monthly increase next year and going up to $10.20 a month more in 1993. This would be the only additional cost for 60% of the Medicare recipients above the poverty level, he said.

A surtax--”a new income-related supplemental premium,” as Rostenkowski called it--would pay for 63% of the costs.

This will be paid by about 40% of Medicare beneficiaries who pay federal income tax, he said, but only 10% of them will pay the maximum amount. The average cost for those who must pay the tax surcharge will be $285 next year. The maximum will be $800 for single people earning about $45,000 a year and $1,600 for couples with incomes of $90,000 or more.