Printable Version

LCAO Joint Statement for Mark-up of House Budget

(Alliance for Retired Americans)

The Honorable John Spratt
207 Cannon House Office Building
Washington, DC 20515-6065

Dear Mr. Chairman:  

We the undersigned organizations represent millions of Medicare beneficiaries across the country.  We are devoted to preserving and improving the Medicare program so that it can meet the health care needs of beneficiaries for generations to come.

As advocates for Medicare beneficiaries and of the Medicare program itself, we are uniting to express our utmost concern with the Medicare policies presented by the Administration.  Last month, President Bush submitted his Fiscal Year 2009 budget, which proposes severe cuts to Medicare, totaling $178 billion over the next five years, $556 billion over the next 10 years, and more than $10 trillion over the next 75 years.  These massive and capricious cuts increase beneficiary cost-sharing and slash reimbursement rates to providers who serve beneficiaries in traditional Medicare.  Also, last month the President submitted his legislative proposal to cut Medicare spending in response to the arbitrary 45 percent Medicare funding cap.  We are concerned that the magnitude of cuts proposed by the President will undermine the strength of traditional Medicare and negatively impact the health outcomes of beneficiaries by limiting their access to care.

As Chairman of the Budget Committee, you are acutely aware of the financial challenges facing the Medicare program.  However, these challenges are not unique to the Medicare program—they reflect the same pressures driving health care costs for those under age 65 (e.g., the growing ranks of the uninsured and underinsured Americans; rising health care inflation; and the high cost associated with developing new technological breakthroughs).  Solving the challenges facing our entire health care system would also strengthen the sustainability of the Medicare program.  Unfortunately, the President’s Medicare proposals do nothing to address the overall pressures that are driving health care costs.  Now that Congress begins to consider the Fiscal Year 2009 budget, we would like to take the opportunity to explain why the President’s proposals are so detrimental to the Medicare program.  

An expansion of means-testing would increase beneficiary premiums, create costly problems for beneficiaries, and undermine the social insurance nature of Medicare.

President Bush has repeatedly advocated for an expansion of means-testing in Medicare.  Both his Fiscal Year 2009 budget and his legislative response to the 45 percent funding cap contained means-testing provisions.  The means-testing proposals outlined in his budget would raise beneficiary premiums by $460 million in FY 2009 and over $5.8 billion in the five-year budget window.  Those with incomes above certain levels are already paying higher Part B premiums because of provisions contained in the Medicare Modernization Act of 2003 (MMA).  Currently, the income thresholds rise each year to reflect inflation, but these inflation adjustments are eliminated in the President’s budget. Additionally, the President proposes to apply means-testing to Medicare Part D, using the same income thresholds for the means-tested Part B premium, which like his proposal for Medicare Part B would not be adjusted for inflation.
 
Contrary to Administration claims, means-testing does not modernize or improve Medicare for beneficiaries.  As hundreds of thousands of Medicare beneficiaries can attest, the Centers for Medicare & Medicaid Services (CMS), the Social Security Administration (SSA) and the Internal Revenue Services (IRS) cannot, even under the current system, accurately determine the Part D premiums that beneficiaries are required to pay.  Current problems include the failure to withhold premiums, the failure to cease withholding premiums, the failure to withhold the correct amount in premiums, and the failure to forward deducted premiums to the proper Part D plan.  These failures can create costly problems for beneficiaries, such as having more deducted from their Social Security check than they can afford or being retroactively disenrolled from their Part D plans.

Income-relating Part D premiums, as envisioned by the President, would be even more complex than the current system.  It would require proof, confirmation, and multiple data exchanges among three governmental agencies - CMS, SSA, and IRS - and the almost 2,000 Part D plans nationwide.  Based on Medicare beneficiaries' experiences to date, it is fair to assume that it would greatly exacerbate current problems, and create new ones, if another level of premium calculation is added.  Additionally, State Health Insurance Assistance Programs (SHIPs) already have difficulty assisting beneficiaries in choosing the Part D plan that is most appropriate for them.  There are too many plans, with too many different variables, including premium, deductible, coverage gap, formulary, and utilization management requirements for formulary drugs.  The President's budget unwisely adds another variable based on income, making premium calculations more difficult.

We support the complete elimination of means-testing because it undermines the social insurance nature of the Medicare program in which everyone contributes for the good of all.  As people with higher incomes are required to pay higher premiums, they will seek less expensive options in one of Medicare’s ever-increasing number of private plans.  Means-testing also raises premiums for those who have paid the most into the program.  By the time they retire, higher-income seniors have already paid a greater share of Medicare's cost compared to low- and middle-income seniors.  For example, higher-income seniors contribute more in Medicare payroll taxes since there is no income cap, as there is in the Social Security program.  Higher-income seniors also pay more income tax which helps to finance the majority of Part B and Part D costs.  Finally, these seniors are subject to higher income taxes on their Social Security benefits, which are used to strengthen Medicare's Hospital Insurance trust fund. 

As submitted, the President’s proposals to eliminate the current inflation adjustment for the income-related Part B premiums as well as for the Part D premiums would lead to more and more middle-income seniors paying higher Medicare premiums.  As the Budget Committee is well aware, a similar problem has occurred with the Alternative Minimum Tax (AMT).  The AMT was originally designed to prevent high-income taxpayers from using loopholes to avoid paying their fair share of taxes.  However, over time more middle-income workers have found themselves unfairly subjected to the AMT because the income thresholds were never indexed.

The arbitrary cap on general revenue financing of Medicare ignores Medicare’s financing structure and limits meaningful reform.

A provision in the Medicare Modernization Act of 2003 (MMA) requires the Medicare trustees to project the point at which general revenues will finance at least 45 percent of Medicare's outlays.  If the trustees project in two consecutive annual reports that the 45 percent cap will be reached in the next six years, Presidential action and Congressional review are triggered.  At that time, the President is required to submit a proposal to Congress that would likely require severe Medicare cuts to reduce general revenue financing.  The 45 percent cap was officially triggered with the release of the Medicare Trustees report last spring.  Consequently, this has triggered both a budget proposal and a legislative proposal by President Bush to reduce general revenue financing.  The President’s budget proposal would require automatic payment reductions of 0.4 percent per year to health care providers when the cap is breached.  These reductions would increase each year by 0.4 percent until general revenue funding is brought back to 45 percent.  And the President’s legislative proposal contains a number of provisions including an expansion of means-testing in Medicare.

This 45 percent cap represents an arbitrary measure of the Medicare’s health and ignores its financing structure, which was designed to rely on general revenues to finance about 75 percent of Part B and Part D.  This structure allows the revenue raised by income taxes to shoulder a higher portion of responsibility for Medicare's funding, placing the burden on a revenue source which is relatively progressive and taxes all income.  If general revenue contributions are limited, the burden would shift to beneficiaries (who are typically on fixed incomes) or increased payroll taxes, which only tax wages and fall disproportionately upon those with lower incomes.  Neither of these policy considerations is reflected in the funding limit.  Further, the 45 percent cap limits the consideration of all solutions—including the use of increased revenues—to address problems facing both the Medicare program and the U.S. health care system.  We encourage Congress to repeal this arbitrary funding limit and prevent these Medicare cuts from taking effect.

Medicare savings should be achieved by equalizing payments to private Medicare Advantage plans.

While the President proposes billions of dollars in cuts to traditional Medicare, he continues to dole out excessive and wasteful subsidies to private insurance Medicare Advantage plans.  Today, the government pays an average of 13 percent more to cover a beneficiary enrolled in a private Medicare Advantage plan than it would cost to cover that same beneficiary under traditional Medicare.  In simple dollar terms, Medicare pays about $1,000 more a year to cover a beneficiary in a private plan than it would cost to provide care to that same beneficiary under traditional Medicare.

All Medicare beneficiaries, whether they enroll in a private plan or not, subsidize payments to private companies by paying higher Part B premiums.  Today, these premiums are almost $50 per year higher per couple than they would be absent the subsidies to private plans.  This number will continue to grow exponentially in future years.  These increases are in addition to the record-setting increases in Part B premiums beneficiaries have already experienced – and which are expected to continue – as a result of overall increases in the cost of health care.  

In addition to adding costs for individual beneficiaries, subsidies to Medicare Advantage plans result in higher costs to the federal government.  Medicare’s actuaries estimate that eliminating these subsidies would add two years of solvency to Medicare's hospital insurance trust fund.  According to the Congressional Budget Office (CBO), paying private plans at the same rate as traditional Medicare would save $50 billion over the next five years and $157 billion over the next ten years.  

For all of these reasons, we support the Medicare Payment Advisory Commission’s (MedPAC) recommendation that payment policy should be built on a foundation of financial neutrality between payments in the traditional fee-for-service program and payments to private plans.  We should be using taxpayer dollars to promote quality in Medicare instead of bestowing unwarranted subsidies on inefficient private plans that serve a fraction of Medicare beneficiaries.  

The budget resolution should provide resources for necessary Medicare improvements.

As a member of the Budget Committee, we encourage you to strengthen Medicare by providing resources that could be used to improve the Medicare Savings Program (MSP) for Parts A and B and the Low-Income Subsidy (LIS) for Part D.  These programs directly help beneficiaries with limited incomes and assets afford their Medicare out-of-pocket costs.  We also encourage you to provide resources that could be used to enhance access to preventive care and mental health services.  We believe these enhancements would reduce financial barriers to receiving care and could be financed by curtailing excessive subsidies to the insurance industry.  

As the Budget Committee begins to markup the Fiscal Year 2009 Budget Resolution, we believe there is a real opportunity to improve and strengthen Medicare.  We strongly urge you to reject the misguided Medicare priorities proposed by the President.  His proposals for means-testing premiums and for massive Medicare cuts could not be more out-of-touch with beneficiaries.  Furthermore, beneficiaries oppose his attempts to undermine traditional Medicare by rewarding private insurance companies with unwarranted taxpayer and beneficiary-funded subsidies.  We look forward to working with you and other members of the Committee to improve the program for all beneficiaries and to ensure that traditional Medicare is preserved for generations to come.   

Sincerely,

AFL-CIO
AFSCME
Alliance for Retired Americans
Center for Medicare Advocacy
Families USA
Medicare Rights Center
National Committee to Preserve Social Security and Medicare
OWL – The Voice of Midlife and Older Women


Cc:  Members of the House Budget Committee
 

Related Documents

• LCAO Joint Statement for Mark-up of House Budget
  LCAO Joint Statement for Mark-up of House Budget