Clarifying a Controversy

Criticism of the expansion of Medicare benefits that went into effect Jan. 1 rages on. Thousands of senior Americans are besieging both the House and Senate with appeals to amend or set aside the so-called catastrophic coverage and other benefits now being phased into Medicare. But we have reviewed the changes again, and we think it would be a serious mistake to abandon the program.

Most of the controversy focuses on the fact that catastrophic coverage is financed by premiums and tax surcharges paid by the beneficiaries themselves. Because the surcharge will apply to only 40% of the higher-income Medicare recipients, the burden on middle- and upper-income retired persons will increase, but even they will continue to receive in benefits far more than they contribute in taxes and premiums.

A study by the Congressional Budget Office demonstrates that the average Medicare beneficiary, enrolling at this time, actually contributes, in payroll taxes, premiums and supplementary tax surcharges, only 25% of the benefits received. It is true that the new expansion of Medicare, with its expanded acute-care hospital and prescription drug benefits, has shifted the levels of subsidies. The subsides for low- and average-wage earners will increase slightly. For higher-income persons, however, the lifetime benefits in excess of taxes and premiums are in effect reduced by $11,400 for men and $15,900 for women, according to the Congressional Budget Office research.

“Nevertheless, for high-income retirees, the value of Medicare exceeds taxes by $1,650 a year and represents a subsidy of approximately 38% of benefits,” according to the study. No program of similar quality and benefits is available to any other segment of the population. Medicare, with an overhead of about 2%, contrasts in particular with private Medi-Gap insurance policies that may pay back only 60% of premiums. Still, the surcharge will cost as much as 2% of gross income for a few this year, and close to 3% of income for a few by the year 1993.

These discrepancies reflect the unique funding of the Medicare catastrophic coverage extension. There are two sources of this funding. Everyone, rich and poor, pays a flat $4 monthly premium. Those with federal income tax obligations of $150 or more pay a surcharge. The surcharge is in addition to the basic Medicare premiums. This year, the surcharge will amount to about $78 for a person with gross income of $15,000, $307 at $25,000, up to a maximum of $800 for those with incomes of $40,000 or more. There are some groups of Medicare beneficiaries with special problems created by the extension of coverage. One of these groups, constituting an estimated 10% of the total, already was receiving similar benefits at no cost under retirement arrangements with their employers. The law requires those employers to maintain equivalent support only for one additional year. Some government retirees feel the offset included in the law is not adequate to protect them from the disproportionate tax surcharges they face. Some fine-tuning of those rules may be appropriate in the future.

There also is controversy over the extent of the surplus that may develop in the new fund in its initial years, and the adequacy of the funding proposed for the prescription drug benefit to be phased in over future years. We agree with President Bush that the government should follow the most cautious route. Any adjustment of the tax surcharge should be postponed until there is a clearer picture of the surplus question. The schedule for the implementing drug benefits should be maintained.

There is, admittedly, a glaring defect in this legislation. It is not well-named. It is not, in fact, catastrophic protection, because the real catastrophe in health care for older Americans is the absence of protection against the high cost of long-term care in a nursing home. Medicare, even with some improvements in this legislation, provides only limited long-term care. In the absence of affordable private insurance for long- term care, the only effective safety net is provided by Medicaid, called Medi-Cal in California, which is provided only for low-income elderly. Clearly, Congress must not stop with the 1989 improvements to Medicare. It must proceed with long-term care protection.

But the older Americans who are angered at being asked to share the cost of the new benefits must remember that there are other health-care priorities, first among them a response to the 37 million Americans who have no health insurance of any kind. Most of them are working or are the dependents of workers. They would doubtless be among the first to object to any scheme to turn to general revenues to reduce the cost of already highly subsidized Medicare coverage.