But Both Sides in Surtax Dispute Rely on Guesswork : Bentsen Bets He Has Medicare Number

Sen. Lloyd Bentsen (D-Tex.) knows that statistics are strange and changeable things.

When he was writing a law several years ago to provide an insurance fund for workers’ pensions, government experts told him that an annual premium of 50 cents per worker would be enough. Let’s double it to be sure, Bentsen said, and the premium was set at $1 a year.

Today, the pension insurance system costs $16 a year for each worker, Bentsen said the other day, laughing at the memory of how wrong the actuaries can be.

But now this same Lloyd Bentsen is making a big political bet that the experts have guessed right in figuring the cost of Medicare’s catastrophic-illness program, which offers beneficiaries unlimited days of hospital care and coverage of prescription drugs.

Number crunchers at the Congressional Budget Office told Bentsen that the new law will leave a surplus of $9.1 billion by the end of 1993. So he has proposed returning $4 billion to Medicare beneficiaries.

Bentsen wants to cut by at least 16% the special surtax that will be levied on the elderly beginning with their 1989 income to help finance the program’s expansion. The tax, which will be borne by the 40% of Medicare recipients who pay federal income taxes, will range up to $800 a year for an individual.

However, other budget analysts have different ideas about how much of a surplus the new Medicare surtax will produce. The Bush Administration’s experts at the Treasury Department reckon that the balance in the catastrophic-illness fund will be a much more modest $6 billion by the end of 1993.

And President Bush, unsure about the impact of Medicare coverage of prescription drugs beginning in 1991, fears that even this number may be an overestimate. So he strongly opposes any reduction in the controversial surtax.

“It’s a new program, and we don’t have a model to follow,” an Administration official said Tuesday. “We are facing the unknown in making predictions on expenditures and revenues. We want to make sure there is a reasonable amount in the fund to cover the costs.”

Despite their sophisticated computer models, both sides ultimately are operating on guesswork. The catastrophic-illness benefit began Jan. 1.

But the special surtax will not begin to be collected until early next year, when Medicare beneficiaries pay federal taxes on their 1989 income. Although the government calls the levy a supplemental premium, it is really a surtax because it is charged at the rate of $22.50 for every $150 owed in federal taxes, up to a maximum of $800.

In determining whether the surtax will raise enough money to cover the new program’s costs, the easy part is estimating the revenue.

Using data from the Internal Revenue Service and the Census Bureau, the experts determine how much money will be paid in federal taxes on 1989 income. Then they estimate how much of that will be paid by Medicare beneficiaries--the roughly 30 million Americans who are 65 or older and the 3 million who are disabled.

But, even on the revenue side of the equation, Bentsen and Bush diverge. Bentsen’s experts, modifying some of their technical estimating techniques, have become more optimistic than they were a year ago about the number of well-to-do elderly people who will have to pay 1989 income taxes--and will therefore have to pay the surtax.

Bush’s experts at the Treasury Department, by contrast, have not changed their view of the number who will pay.

It is on the cost side of the equation that the estimates are particularly dicey, however.

Hospital care is the easy part. Before the new plan took effect, Medicare already covered all hospital expenses from the second to the 60th day, with beneficiaries paying part of the cost after that. Under the new program, Medicare will pick up all hospital bills after the first day. But relatively few people are hospitalized for more than 60 days a year, and their number is fairly predictable from year to year.

The wild card is prescription drug coverage. No one knows for sure how much demand for drugs will increase after Medicare coverage begins in 1991.