Reagan Sympathetic; Congress Outbid Him

As Ronald Reagan’s secretary of health and human services, Otis Bowen knew first-hand about the financial devastation that illness can wreak with the elderly. His wife lost a three-year battle with bone-marrow cancer, and his mother died after three years in a nursing home.

“I saw family after family that had catastrophic illness and the catastrophic expenses that went along with it,” said the courtly, white-haired retired physician. “I have seen them spending themselves down to (poverty) level in order to have the care that they need.”

Bowen’s boss was a sympathetic listener. Over the vociferous protests of conservatives in his Cabinet and his own White House staff, Reagan endorsed a program to guarantee Medicare’s 33 million beneficiaries that none of them would go broke because of an acute illness or a long stay in the hospital.

He unveiled his catastrophic care plan in 1987. All Medicare beneficiaries would pay $4.92 a month. In return, they would get protection. After an elderly patient had paid a total of $2,000 in one year for hospital and doctor bills, Medicare would pay the rest.

Reagan set another condition: The program would have to be self-financed. He would veto any plan that called for revenue sources other than the elderly themselves.

Many Democrats in Congress, and some Republicans, responded enthusiastically. Joining with groups representing the elderly, they decided to outbid the President, daring him to fight them on a popular issue.

As the bill moved through Congress, it picked up new benefits: prescription drug coverage, an easing of the restrictions on eligibility for skilled nursing care, financial protection for the spouse of someone in a nursing home, and Medicare coverage for mammograms.

The premier lobbying group for seniors, the 28-million-member American Assn. of Retired Persons, was particularly insistent on adding the drug benefit. In return, AARP reluctantly agreed that the new benefit would be paid for only by the population eligible to receive it, the 33 million persons on Medicare--30 million of them age 65 and older and 3 million disabled persons of all ages.

Congress accepted Reagan’s idea of a small monthly fee for everyone on Medicare, but it let the program’s additional financial burden fall on the elderly most able to pay for it. Trying to disguise the extra revenue-raising feature, Congress called it a “supplemental premium.”

In fact, it was a surtax. The elderly’s tax bills would be boosted by 15%. The 60% of the elderly who paid no income tax would pay no surtax either. But the other 40% would pay as much as $800 a year when the program began in 1989.

As finally enacted by Congress, the universal premium--the $4 paid by all Medicare beneficiaries--raises just 40% of the revenue for the program, estimated to be $8.3 billion this year. The supplemental premium--the surtax--accounts for the other 60%.

When Reagan signed the program into law on July 1, 1988, he said it “will help remove a terrible threat from the lives of elderly and disabled Americans.”

Instead, it has touched off a grass-roots political revolt and provided Congress with a new headache.