Revolt by Lawmakers Against Surtax for Catastrophic Care Seen as Unstoppable

The last bastion of support for the beleaguered new Medicare program that protects the elderly and disabled against the high cost of catastrophic illness started to crumble Thursday as the House Ways and Means Committee agreed to consider whether it should be repealed or modified.

Committee Chairman Dan Rostenkowski (D-Ill.), the most powerful congressional advocate for keeping the costly program intact, acknowledged that he no longer can squelch a full-scale revolt among lawmakers besieged by elderly voters who object to paying the surtax needed to finance the benefit, aides said.

The committee, which is drafting a $5.3-billion tax bill to help cut next year’s budget deficit, plans to return next week to decide what to do about the Medicare program.

Sees Consensus

“There is now a consensus that we have to do something about catastrophic illness on a bipartisan basis,” said Rep. Bill Archer (R-Tex.), who has been at the forefront of efforts to change the program.

The committee defeated a move by Archer, however, that would have tied a one-year delay in the new surtax to an immediate cut in the tax on capital gains.

Meanwhile, the panel finished working on Rostenkowski’s package of proposed tax measures, but it still plans to consider other proposals to reduce the capital gains tax--which is charged on the profits from investments in stocks, bonds and other assets--and to extend certain expiring tax breaks for corporate research and development, low income housing and mortgage revenue bonds.

The tax writers voted to speed up the elimination of the tax deduction for interest on consumer loans, a move that will add $1 billion next year to the tax bills of 24 million taxpayers. They took that action to keep some tax breaks for employee stock ownership plans used by corporations primarily as a defense against hostile takeovers.

Surprisingly, the Bush Administration, which has opposed nearly all efforts to raise taxes on individuals, did not object to the plan to put an end to consumer interest deductions after this year, committee aides said. Under current law, consumers would still be able to deduct 10% of their borrowing expenses in 1990.

At the same time, the committee rejected Rostenkowski’s plan to boost the tax on pipe and chewing tobacco, requiring instead that mutual fund shareholders pay tax on their dividends at an earlier date.

The Medicare catastrophic care program, which Congress approved just last year, provides unlimited days of hospital care after the Medicare beneficiary has paid $560, places a ceiling on out-of-pocket expenses for doctors’ services and helps pay for prescription drugs. It does not cover the cost of nursing home care.

The cost of the program is borne by Medicare recipients, with all 33 million of them required to pay $4 a month. But the most controversial aspect of the law is a surtax to be imposed on the 40% of Medicare beneficiaries affluent enough to pay income taxes. They would be required to pay an additional tax of up to $800 a person next year.

The prospect of paying higher taxes touched off angry protests among groups of retirees, particularly those who already have medical insurance coverage in addition to Medicare. The revolt was led by groups representing retired federal workers and union members, who complained that they will end up paying substantial sums of money without getting significant new benefits.

Tax writers agreed Thursday to spend the weekend discussing whether there might be ways of modifying the catastrophic care program without repealing it outright.

But aides said that prospects for such a compromise look dim. They predicted that the committee could vote to end the new Medicare benefits and, if not, will almost certainly adopt a measure that would allow the full House to decide whether to repeal the surtax or the entire program.

Until now, Rostenkowski has been able to keep the House from reconsidering last year’s catastrophic care decision by keeping it bottled up in committee.

Rostenkowski made clear, however, that those seeking repeal would have the burden of finding ways to make up revenues that would be lost next year, because the surcharge would actually bring in more money in the early years than would be paid out. The critics would either have to move to cut other programs or add taxes to the budget bill.

There is also a strong effort under way in the Senate to change or end the catastrophic care program. Finance Committee Chairman Lloyd Bensten (D-Tex.) has said that it might be necessary to eliminate the prescription drug payment from the program because of its unexpectedly high cost.