Affluent Aged Would Pay for Medicare Gains

Despite wide praise for a major Medicare revision that is moving quickly through Congress, protests are starting to mount from some retirees who would bear the cost of the added coverage but would not gain significantly from it.

The Medicare proposal is designed to reduce out-of-pocket expenses of recipients and head off the catastrophic financial burdens associated with serious illness.

But millions of middle- and upper-income retirees who would pay for the new benefits--notably former federal workers and pensioners from some big corporations--already have supplementary health insurance coverage that they prefer.

The supplementary insurance pays some or all of the expenses not covered by Medicare and can mean economic survival in cases of major illness.

80% Have Coverage

About 80% of the nation’s 30 million Medicare recipients have some form of supplemental medical insurance, according to insurance industry figures. Because these policies vary considerably, however, it is not clear how many of them would prefer their current policies over benefits provided by the proposed Medicare revision.

Under versions of the legislation passed by the full House and approved by the Senate Finance Committee, the costs of the added benefits would be borne by the Medicare enrollees who have enough income to pay federal taxes, about 40% of those over 65. The House bill would place more of the cost burden on middle-income people.

The maximum annual charge for single people under the House bill, $580, would be paid by an estimated 2.4 million, those earning more than $20,000 a year. And 1.5 million couples, with incomes in excess of $38,000, would pay the top rate for couples, $1,160 a year.

These income-related payments would be made in addition to the basic premium paid by all beneficiaries under the current Medicare system, now $214.80 a year. Those elderly who do not pay federal income taxes will continue to pay only the basic premium and will be excluded from the additional payments.

Government experts estimate that single people earning more than $11,000 a year and couples with incomes above $21,000 would pay the new premiums, which would rise with higher income under a sliding scale outlined by the bill.

The new Medicare fees under the House bill would pay for the largest expansion since the program began in 1965, providing unlimited days of government-paid hospital care and a ceiling on personal spending for all hospital and doctor bills.

Self-Financed Benefits

Congress, fearful of adding to the federal deficit, decided to make the Medicare expansion self-financing. Thus, for the first time, a program of social benefits will be paid for entirely by the people receiving the benefits--creating a new financial burden that would fall heaviest on middle-class beneficiaries.

Sen. Lawton Chiles (D-Fla.) has received several hundred letters and said the sentiment is running about 10 to 1 against the current version of the Medicare legislation. These excerpts reflect some of the more common complaints:

--”I would be taxed $580 a year for the bits and pieces of miscellany offered in the bill.”

--”Double coverage is only a waste. Nobody should be asked to pay for it.”

--”The elderly that are not poverty stricken are being used,” said a retired teacher, who wrote that she was forming a citizens’ group to protest the legislation.

--The new premium is a “special income tax on elderly retirees. It seems terribly unfair,” a 70-year-old man wrote.

Concerned About Cost

“People want protection, but they’re concerned about the cost,” said Bill Livingstone, a spokesman for Sen. Pete Wilson (R-Calif.), whose mail is running slightly in favor of the Medicare legislation.

Indeed, the nation’s largest organization for the aging, the 25-million-member American Assn. of Retired Persons, likes the new Medicare benefits but is unhappy with the way they would be financed. “We continue to have concerns about the financing,” said Cyril F. Brickfield, the association’s executive director.

The association wants to raise more tax revenues by having all state and local government employees pay the Medicare payroll tax and by increasing federal taxes on tobacco. It would also accept some increase in premiums for the elderly.

“We are pressing our case in the Senate,” Brickfield said. “This is the first time in the history of Medicare that beneficiaries are being asked to pay the entire bill. We know that beneficiaries are going to have to pay part of the bill, but they shouldn’t have to pay the whole bill.”

Overwhelming Approval

The House approved its Medicare legislation by an overwhelming vote of 302 to 127 in July, and its members are likely to insist on their financing plan when they confer with the Senate on a final version of the legislation. The House bill takes more from the middle class because it finances a more expensive program than the Senate’s version.

The House bill adds prescription drugs to Medicare, with the patient paying the first $500 a year and 20% of any additional charges. The Senate Finance Committee bill, which sets a ceiling of $1,700 for combined doctor and hospital bills, does not include a drug benefit.

Under current law, the patient pays $520 for the first day in the hospital, receives the next 59 days free and then pays $130 daily. The proposed legislation would require the patient to pay just the first day’s charges, with all additional hospital care free, regardless of the duration of illness.

Patients now pay 20% of the cost of doctor bills, with no limit on out-of-pocket expenses. The House bill would set a ceiling of about $1,600 for hospital and doctors’ charges paid by the individual; beyond that, the government would pay all costs.

Poor to Benefit

The poor would be among the major beneficiaries of the House bill, which offers free Medicare coverage to as many as 2 million people living in poverty but with incomes too high to qualify for the federal Medicaid welfare program. The state governments would pay on behalf of the poor the costs normally paid by patients, the $520 for the first day in the hospital and the 20% of doctors’ bills.

To finance the Medicare expansion, all 30 million Medicare enrollees would pay a base premium of $2.60 a month under the House measure and $4 a month under the Senate Finance Committee plan. The additional supplemental premiums would be linked to income in both plans.

The House bill’s premium is linked to adjusted gross income, rising with earnings. (Social Security income is not included in this calculation unless other income exceeds $25,000 for a single person or $32,000 for a couple.)

The Senate committee plan, which will be considered by the full Senate next month, links the premium to the amount of income taxes paid by the beneficiary. It puts more of the burden on upper-income persons.

Annual Premiums

For a single retiree with $15,000 in income, the annual premium would be $311 under the House bill and $85 under the Senate committee bill. At $20,000, the cost would be $580 under the House bill and $98 under the Senate bill.

A married couple would pay nothing until their earnings exceeded $21,000 in the House version or $22,000 in the Senate committee bill. At $25,000, the couple would pay $220 under the House bill and $37 under the Senate bill.

The Senate panel’s top rate of $850 would be paid by a small group: the 550,000 single people earning more than $60,000. About 400,000 couples with incomes of $95,000 and over would face the maximum payment. This compares to the maximum of $580 for singles earning more than $20,000 and $1,160 for couples earning in excess of $38,000 under the House bill.

Retired federal workers are particularly unhappy about the costs of the Medicare expansion because all their pension income is counted in calculating their proposed Medicare fees, while Social Security income is largely excluded in the calculation of premiums paid by private sector employees.

There are about 2 million retired federal workers nationwide, and California has the largest number, 210,665.

‘Double Whammy’

These retirees get a “double whammy,” said Judy Park, the legislative director of the National Assn. of Retired Federal Employees. “Not only do they pay more than their counterparts on Social Security, but they already have good catastrophic care coverage.”

Federal workers can choose among 400 health plans, and about 85% of them take health insurance into retirement. One common plan offers a $1,500 limit on out-of-pocket spending for a premium of $18.50 a month.

George Hennrikus, legislative director for the 350,000-member military Retired Officers Assn., said his members would not benefit from the bill because many of them already have a supplemental Medicare policy that provides a $1,000 cap on out-of-pocket expenses.

However, he said, catastrophic health care legislation is headed for inevitable passage by Congress. “The bill has tremendous momentum,” Hennrikus said. “It’s like facing a tidal wave with a bucket. But I think, when it passes and people realize how it affects their income, there is going to be a tremendous protest.”

Many major corporations, particularly those with union contracts, offer comprehensive health benefits at a relatively modest cost. For these firms’ retirees, the Medicare legislation seems unappealing.

“GM charges me $135.48 a year for more coverage than your bill gives,” a Deland, Fla., man wrote Sen. Chiles.

Proposed Coverage Current House Senate Hospitals $520 for $1,600 limit $1,700 Limit first day, for doctor and for doctor and next 59 days hospital bills hospital bills free, then combined. Two combined. $130 daily. milllion low-income No limit. people would get full coverage At no cost. Doctors 20% of covered expenses. No limit. Drugs No First $500 a year, No coverage. 20% of additional coverage charges. No limit.

Chart shows costs paid by Medicare recipients and coverage provided under current and proposed laws. Fees for proposed added coverage vary by income and version of legislation.