Panelists Agree to Cut Medicare Surtax in Half

The House Ways and Means Committee, in an effort to suppress a political revolt among the elderly over a costly new Medicare catastrophic care program, narrowly agreed Tuesday to halve the 15% surtax that many retirees would have to pay next year.

The compromise, approved on a 19-17 vote, would make Medicare beneficiaries with incomes of less than $25,000 pay more for catastrophic care coverage to cut the cost for other retirees.

The panel, with strong backing from the Bush Administration, agreed to reduce the burden on more affluent Medicare beneficiaries--many of whom have bitterly complained about additional taxes of as much as $800 per person scheduled to start when 1989 tax returns are filed next year--in an effort to head off a proposal to repeal the entire program.

Currently, most of the financial burden of the new program is placed on the 40% of Medicare beneficiaries who earn enough to pay income taxes. By modifying the payment scheme to reduce the surtax by about $2.5 billion a year, supporters of catastrophic care coverage expect to be able to defeat a House vote later this year aimed at eliminating the program.

“Middle-income seniors had a legitimate gripe,” said Rep. Sander M. Levin (D-Mich.), who argued that the compromise should now “make it palatable” to them.

The catastrophic care plan approved by Congress last year contains an overall limit on the amount of money that the nation’s 34 million Medicare recipients would be required to pay out of pocket in the event of any illness requiring extended medical care. The plan also includes future help in paying for prescription drugs.

Capital Gains Battle

Meanwhile, Democratic leaders in Congress on Tuesday stepped up their attacks on President Bush for advocating a cut in capital gains taxes, a proposal that continues to hold a slight edge in the House tax-writing panel.

“The President is reneging on the deal” struck by Republicans and Democrats in 1986 when they approved a law that slashed overall tax rates by eliminating a host of special tax breaks, argued Sen. Bill Bradley (D-N.J.), a key architect of the tax reform law.

“Bush says no new taxes,” Bradley said. “I say no new tax loopholes.”

The Ways and Means Committee is drafting a bill to raise $5.3 billion in additional revenue next year. Rep. Dan Rostenkowski (D-Ill.), the committee’s chairman, has been postponing a vote on the capital gains tax cut in hopes of defeating the proposal by convincing at least one of the supporters to change his stance.

Deadlock Broken

The committee finally broke its deadlock over catastrophic care after Reps. Pete Stark (D-Oakland) and Bill Gradison (R-Ohio), the two leading health care experts on the panel, forged a majority in support of a compromise package.

Under the plan, the surtax on the income tax bills of Medicare recipients next year would be 7.5% instead of the 15% mandated under current law. The surtax would be cut in half in future years as well, so that the rate would rise to 14% in 1993 instead of 28%.

While current law would impose the maximum supplemental premium of $850 in 1991 on couples with incomes above $60,000 and single persons who earn more than $35,000, according to staff members, the new package would not impose the top surtax until a couple’s income reached about $80,000, or $45,000 for singles.

Could Opt Out

The package also dangles the possibility of opting out of the catastrophic care program, but only if a Medicare recipient is willing to give up the entire Part B coverage that pays for doctors’ bills. Of the roughly 34 million Medicare beneficiaries, only about 300,000 retirees--mostly former federal workers--are expected to take advantage of the plan to make Part B “voluntary.”

“It’s about as voluntary as a prison sentence,” said Rep. Brian Donnelly (D-Mass.), who said that experts had estimated that private insurance to replace Part B coverage would cost at least $2,000 a year. “A lot of the elderly are going to see this as a charade.”

To make up the roughly $2.5 billion in lost revenue from cutting the surtax, the panel agreed to add $3.50 a month next year to the Part B premium that is subtracted from Social Security benefits.

Medicare recipients currently pay $31.90 a month for Part B coverage, which is scheduled to rise to $34.90 next year. Another $4 a month would be added to the premium in 1991 and $4.10 a month in later years, on top of already scheduled increases.

For prescription drug payments, which are not scheduled to go into effect until 1991, the package would raise the annual out-of-pocket deductible in 1991 from $600 to $800 and from $650 to $950 in 1992. Medicare beneficiaries would be required to pay $1,100 in 1992 before the government would pay for prescription drugs.

Unlike an earlier proposal offered by Rostenkowski, however, the package would keep the current $75 annual deductible for doctors’ bills and hold the annual Medicare cap on doctors’ expenses at $1,370.