Budget Package Softens the Blow for the Elderly : Medicare: The plan reduces cost increases and provides new benefits. However, it places a new burden on workers who earn more than $53,400.

America’s Medicare beneficiaries would be saved from a big financial blow under the new federal deficit-reduction plan, but their victory is likely to shift a substantial new burden to workers earning more than $53,400 a year.

The budget package cobbled together by Senate and House negotiators late Friday would represent a significant legislative victory for the nation’s elderly, whose large numbers and high voter turnout have made them a potent political force in Washington.

The original budget accord worked out by White House and congressional negotiators would have required elderly Americans to pay an additional $30 billion over the next five years for Medicare coverage.

The new package, devised after protests by senior citizens contributed to a resounding rejection of the first budget accord, calls on the elderly to pay an increased Medicare burden of about $12 billion.

For the lower-income elderly, there are significant new benefits. The government will pay the monthly Medicare premiums for nearly 4 million people living near the poverty line. “For these people living on the margin, it makes a major difference as to whether health care is affordable,” said Ron Pollack, executive director of Families USA, an advocacy group.

In addition, Washington will make available $580 million to help states hire homemaker helpers and aides to keep frail senior citizens in their own residences and out of nursing homes.

And, in a more modest change, the accord would require insurance companies that sell policies designed to supplement Medicare coverage to increase the amount they pay in benefits. They would also be asked to standardize their packages so buyers can compare them more easily.

In stark political terms, the 34 million Medicare beneficiaries, both rich and poor, wound up winning more sympathy in Congress than the 9.8 million higher-paid American workers who will pay increased payroll taxes of $26.9 billion over five years.

Under the deficit-reduction agreement, the ceiling on wages subject to the 1.45% Medicare tax will increase to $125,000 a year, up from the current cap of $51,300. Employers pay an equal amount, and their share also will rise.

Statistically speaking, those taxpayers affected by the payroll tax provision are well above the middle class, but they probably regard themselves as far from wealthy. Median salary income--the point at which half earn more and half earn less--was $24,483 for men who worked full time last year and $16,201 for women.

“If you want to raise a lot of revenue, you have got to hit the middle class, and the Medicare tax takes a bite out of the middle class,” said Cynthia Latta, an economist with DRI McGraw-Hill, an economics consulting and forecasting firm.

The 9.8 million Americans affected by the increase represent less than 8% of the 132 million Americans currently working full time or part time, however, with the vast majority of workers spared from the higher payroll tax.

The maximum payroll tax is $743.85 this year under the current wage ceiling of $51,300. The maximum will jump to $1,812.50 next year under the new wage ceiling of $125,000.

For a person earning $100,000, the tax will go to $1,450, an increase of $706.15.

“No one is cheering about paying more taxes, but I think this is a fair package,” said Rep. Ron Wyden (D-Ore.), who played a key role in increasing Medicare services for the frail elderly.

Medicare payroll tax revenues go into a trust fund, which had been expected to run out of money by the year 2005. The additional revenues will give Medicare three or four more years before it reaches a fiscal crisis.

The trust fund pays for hospital bills under Part A of Medicare. Doctor bills are partially paid under Part B, which requires beneficiaries to pay a monthly insurance premium. Their contribution finances 25% of the costs, with the rest coming from general tax revenues.

After a determined lobbying campaign, advocates for the elderly won major changes in the budget plan, easing the big increases originally proposed by the White House and congressional leaders.

The monthly premiums for Part B of Medicare will be kept at the level needed to pay 25% of the total costs of the program. The Part B premium, now $28.60 a month, will be raised gradually to $29.90 next year, reaching an expected $46.40 in 1995. The original plan would have produced premiums of $54 a month or more.

Medicare participants now pay the first $75 a year of their doctor bills before the government begins paying 80% of additional eligible charges. This deductible will be increased to $100 under the budget agreement. The original plan would have boosted it to $150.

A proposal that would have required seniors to pay 20% of all laboratory charges was dropped.

“This was a move in the right direction, a move toward ensuring that seniors are treated fairly in the federal budget process, and we appreciate the members of Congress, both Democrats and Republicans, who stood up for seniors,” said Martha McSteen, president of the 5-million-member National Committee to Preserve Social Security and Medicare.

Monthly premiums for Medicare are deducted from Social Security checks. In an effort to help the lower-income elderly, the budget conferees set aside $2 billion to pay the premiums of those with incomes up to 120% of the poverty line, currently $6,280 for a single person and $8,420 for a couple.