Senate Committee Agrees to Reduce Medicare Surtax

The Senate’s tax-writing committee reached preliminary agreement Friday to reduce the controversial surtax levied on the elderly under the Medicare catastrophic care program while cutting benefits for doctor bills and prescription drugs.

The Finance Committee’s decision, a response to mounting protests by senior citizens, was the first key step in making major revisions in the catastrophic care program in an effort to save it from total repeal.

Although the full Senate would need to approve any Finance Committee proposal and the House is working on a separate plan, it now appears inevitable that Congress will restructure the law it passed just a year ago.

“There will be substantial pressure for repeal, no matter what modifications are made,” Senate Majority Leader George J. Mitchell (D-Me.) acknowledged Friday.

Only 40% of America’s 33 million Medicare beneficiaries--those who pay federal income taxes--would pay the surtax, but they have mounted widespread and effective protests.

There was “a recognition that major changes had to be made,” Finance Committee Chairman Lloyd Bentsen (D-Tex.) said after leaving the closed meeting.

The Finance Committee has not yet reached an agreement on specific cuts in the surtax, which under current law would rise with income to a maximum of $800 per person after it takes effect next year.

Some members of the Finance Committee spoke in favor of substantially reducing the $800 figure to ease the political pressure, although less than 6% of all Medicare beneficiaries would pay the maximum.

Other senators favored keeping a high maximum but called for reducing the surtax rate, which, under current law, would be 15% of an individual’s federal tax liability over $150. Reducing the rate would help a broader section of the Medicare population.

But there was near-unanimous agreement at the committee session that the surtax must be reduced in some way to placate senior citizens who are angry about a tax that applies only to them.

“I think we made major progress,” Bentsen said.

Cut in Benefits

The committee generally agreed that the reduction in revenue from reducing the tax will force a curtailment of benefits.

Under the existing catastrophic program, Medicare would begin paying doctor bills in full next year once the beneficiary’s 20% share of medical expenses reaches $1,370. Medicare currently pays 80% of doctor charges and the beneficiary 20%, with no ceiling on the beneficiary’s out-of-pocket expenses.

To save money, committee members tentatively agreed to delay the full payment benefit until 1991 and to raise the out-of-pocket ceiling, sources said.

Another likely reduction in benefits is a major increase in the deductible for prescription drugs. Prescriptions would be covered by Medicare for the first time beginning in 1991, with the government paying 50% of charges after the beneficiary has paid $600.

No decisions were reached Friday on the size of a new prescription drug deductible, although the Finance Committee staff has given the lawmakers proposals with deductibles ranging as high as $1,300. The committee is also considering restricting the kinds of drugs covered under the program.

The committee does not plan to alter the expanded hospital benefits that took effect Jan. 1. Under those benefits, the beneficiary receives unlimited days of hospital care after paying $560 for the first day.

Seniors Say All Should Pay

Some senior citizens’ groups have argued that all taxpayers, not just the elderly, should help pay for a program that represents the biggest expansion of Medicare since it began in 1965.

The list of options prepared by the Finance Committee staff includes a proposal to raise to $60,000 the amount of earnings subject to the basic 1.45% Medicare tax. The current limit is $48,000.

Bentsen indicated that the committee members have not decided if they want the general population to help pay for catastrophic care coverage. Under current law, catastrophic care is financed by a dual tax system. The surtax is paid by those senior citizens who pay federal income tax, and a flat premium, $4 a month this year, is paid by all Medicare beneficiaries. The Finance Committee wants to cut the surtax without changing the flat premium.

Would Raise Premium

The House Ways and Means Committee, by contrast, has approved a plan to raise the flat premium to make up for revenue that would be lost when the surtax is reduced. The Ways and Means Committee plan would increase the flat premium to $8.40 a month, increasing the burden on middle- and lower-income beneficiaries.

Mitchell said that Congress is moving to cope with the protests. “No one should despair about this,” he said in a meeting with reporters. “The authors (of the law) knew the supplemental premium would cause substantial difficulty . . . . If you meet substantial political resistance, you modify it.”

Staff writer William J. Eaton contributed to this story.