Bentsen Seeks Cut in Medicare Surtax Placed on Elderly

Senate Finance Committee Chairman Lloyd Bentsen (D-Tex.) called Thursday for a substantial reduction in the controversial surtax that was enacted last year to pay for Medicare coverage of catastrophic health care costs.

Bentsen said that the unpopular premium will produce a surplus of $4.2 billion over five years and estimated that it could be cut “by at least 16%.”

“It was never our intention that beneficiaries pay more than needed to operate this program in a prudent and responsible fashion,” Bentsen told a news conference. “I will move swiftly to ensure that they, in fact, do not.”

The premium, whose enactment touched off a storm of protest by the affluent elderly, is owed only by the 40% of Medicare beneficiaries whose annual income is large enough that they must pay federal income taxes.

The surtax is $22.50 for each $150 in income taxes, up to a maximum surtax of $800 per person. It took effect for the 1989 tax year and will be paid for the first time as the elderly pay taxes on their 1989 income.

Bentsen blamed “misinformation” for much of the controversy over the surtax. He noted that the top premium, $1,600 a year, would be paid by couples with incomes of $74,000 a year or more. “Those are not poor people,” he said.

The premium was designed to help cover some of the costs of a new Medicare benefit that took effect Jan. 1. The new law provides full coverage for hospital stays of any duration, although beneficiaries must still pay $564 for the first day. Previously, Medicare coverage for hospital stays was phased out after the first 60 days a year and terminated after 150 days.

In future years, the new law will put a ceiling on total payments by the elderly for physicians’ services, and it will offer Medicare coverage of prescription drugs for the first time.

“No package offered by the private sector has that extensive benefit for that kind of price,” Bentsen said.

Bentsen has discussed the politically dangerous step of reopening the financing issue with House Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.). The Finance and Ways and Means committees have jurisdiction over Medicare legislation.

Rostenkowski had no comment Thursday but promised a statement next week. Bentsen has sent Treasury Secretary Nicholas F. Brady a letter asking “whether Treasury Department estimates indicate that excess collections are being made and whether the Administration would support legislation designed to remedy the problem.”

Bentsen said that he has not decided how any reduction in premiums should be distributed among Medicare enrollees. The top premium could be reduced to $500 a year, he said, but this would mean that only the most affluent elderly would benefit. Alternatively, the surtax rate could be reduced, spreading the benefit among all the elderly who now pay it.

The catastrophic benefit package will cost $21 billion over the first five years, but revenues are expected to reach $25.2 billion, according to new estimates by Congress’ Joint Taxation Committee and the Congressional Budget Office. These offices had told Congress last year that the surtax would just cover the new costs.

The surplus stems from a newly increased estimate of the number of affluent elderly persons who will be required to pay the surtax. “We understated the number of (persons) in the higher income classes,” said Ronald Pearlman, staff director of the Joint Taxation Committee.

No executive branch office has estimated whether the new surtax will more than pay for the new benefits.

The American Assn. of Retired Persons, whose 28 million members make it the largest organization involved in Medicare issues, endorsed Bentsen’s proposal to reduce the premiums.

“This could be potentially good news for Medicare beneficiaries, particularly for those paying the supplemental premium,” said the AARP, which was a strong supporter of the catastrophic care legislation. In recent months, dissident AARP members have been attacking the organization for accepting the controversial financing mechanism.

The National Committee to Preserve Social Security and Medicare, the only major organization to oppose the financing mechanism, was jubilant over Bentsen’s announcement.

“It has become apparent even to Sen. Bentsen that the lid is blown off his strategy to contain and minimize the senior revolt over catastrophic care,” said Ken Hoagland, a spokesman for the 5.5-million-member committee.

“By supposedly discovering the program is overfunded, he has created a graceful way to revisit the financing mechanism,” Hoagland said. “He has heard from other members who have pressured him to reopen this very unpopular legislation.”

Hoagland’s organization wants to cut the premium paid by the elderly in half and to make up the difference by applying the Medicare payroll tax, 1.45%, to all income. The tax is applied to the first $48,000 of each individual’s income in 1989.