McCain Backs Higher Medicare Premiums for Wealthy

WASHINGTON — The long philosophical battle over whether wealthy people should pay more for their Medicare benefits is breaking out anew on the presidential campaign trail.

The expected Republican nominee, Sen. John McCain of Arizona, has proposed higher Medicare Part D premiums for beneficiaries with incomes of about $80,000 for an individual or $160,000 for a couple. The program subsidizes prescription drug costs.

"No one likes to pay more and everyone likes a free ride," said William J. Diamond of Palm Beach, Fla., a McCain supporter and alternate delegate to the Republican National Convention. "But when you're looking at what the country has to do to keep (Medicare) solvent ... everyone has to pull the boat to the extent they can row."

Although Medicare's trustees have been warning for years that the program is headed for a financial crisis — its hospital trust fund will not be able to fully pay its bills by 2019 — none of the candidates has offered a plan to deal with Medicare's projected insolvency.

Health and Human Services Secretary Michael O. Leavitt said recently he's surprised and frustrated by that, because whoever is elected likely will have to deal with the situation, particularly if he or she served two terms.

McCain's prescription drug proposal is not new. President Bush suggested something similar in his past two budget recommendations, and the Senate last year voted down an amendment resembling McCain's plan. The Democratic presidential candidates, Sen. Hillary Clinton of New York and Barack Obama of Illinois, voted against the amendment, while McCain didn't vote.

McCain's plan won't put much of a dent in Medicare deficits now projected to reach $66 billion a year by 2017. Douglas Holtz-Eakin, McCain's chief economic adviser, estimates the higher Part D premiums would raise about $2 billion a year.

But they would be another step toward a vision of Medicare long espoused by Republicans: that there should be a "means test" for benefits or that premiums should be "income-related."

Opponents warn such limits could drive wealthy beneficiaries out of Part D, or that middle-income beneficiaries could someday face higher premiums as well.

Democrats, generally, have argued that Medicare is a "social insurance" program that relies on the equal participation of all beneficiaries for its broad support. If higher premiums and benefit limits drive out wealthier beneficiaries, they say, Medicare could turn into a welfare program similar to Medicaid.

So far, the momentum seems to favor the Republicans.

They won a major victory in 2003 when, as part of the law creating the drug benefit, they linked income to the Medicare Part B premiums for physician and related services. Beginning last year, individuals with about $80,000 in annual income and couples earning about $160,000 began paying a higher benefit. The income threshold rises with inflation.

This year, about 1.7 million of Medicare's 45 million beneficiaries will pay the higher premiums. On the flip side, premiums are reduced to low-income Part B and Part D beneficiaries.

Robert E. Moffit, director of the conservative Heritage Foundation's Center for Health Policy Studies, said, "I think a lot of folks who are looking at this are saying, 'we can no longer have a retirement policy in which a retired bus driver and his wife and a couple in Boca Raton with a six-figure income should be getting the same level of subsidy," Moffit said.

"You have to make a decision whether you want to continue the social insurance policy of the past or construct a new policy (in which) ... limited government funding should go to the people who need it the most," he said.

The logic of income-related premiums "is gaining wider currency not only with Republicans but with moderate Democrats as well," Moffit said.

Indeed, Alice Rivlin, who served in both the Johnson and Clinton administrations and was the first director of the Congressional Budget Office, said at a recent forum on Medicare's future that "means testing should be a part of the solution."

But Rivlin warned, "I can't imagine that there are so many rich people that means testing is going to help us solve the problem."

Maria Freese, director of government relations and policy for the liberal National Committee to Preserve Social Security and Medicare, said the current income thresholds were set intentionally high so that people would become used to the concept of income-related premiums.

"We think, ultimately, what will happen is they will clamp down on the income level" to around $40,000, Freese said.