Medicare reform carries huge fiscal toll

House and Senate conferees consider making high-income elders pay more.

House and Senate negotiators, working long to come up with a compromise bill to overhaul Medicare and add a prescription-drug benefit, face a vexing issue: keeping the tab down in a time of huge budget deficits.

Congressional budget planners had designated $400 billion over the next 10 years for prescription-drug benefits. But then last summer, the Congressional Budget Office reckoned the version passed by the Senate would actually cost $432 billion, and the House version $425 billion. The excess cost is particularly a problem in the Senate, which has somewhat tougher budget rules.

At the same time, the cumulative federal deficit could reach $5.1 trillion over the next 10 years, estimates to the Center on Budget and Policy Priorities.

Congressional negotiators had set an ambitious goal of reconciling these factors by this Friday. But significant differences remain between the prescription-drug plans passed by House and Senate versions.

Many analysts maintain the 17-member conference committee will take longer - or not succeed at all in forwarding reconciled legislation to both houses.

"The conference will try to wrap up everything by the end of the month," says Joseph Santos, an expert at the American Enterprise Institute in Washington.

Altogether, Americans - more than 280 million of them - consume about 3 billion prescriptions a year. Drug benefits would be especially useful to the 40 million elderly and disabled covered by Medicare. On average, seniors spend about $2,300 a year on legal drugs.

Given the widespread demand for improved benefits, congressional conferees have been considering a number of measures to make the plan fiscally sound.

One suggestion, supported by both Democrats and some Republicans, would require high-income elders to pay bigger premiums than other beneficiaries. Those making above, say, $75,000 or $100,000 would pay more, with premiums rising gradually with income.

Some liberals say such a change risks turning Medicare from a universal social insurance program for the elderly into a welfare program.

The powerful AARP, with millions of retirees as members, "strongly opposes" relating benefits to income, notes an official.

Yet others see no problem as long as Medicare benefits are universal. In fact, a higher premium for the well-to-do would be a means of extracting back some of the "monstrous" tax cuts urged by President Bush that benefit especially high-income taxpayers, says Victor Fuchs, a veteran expert on healthcare economics at Stanford University.

Still, revenues from the extra premiums would not be huge.

"It's not a silver bullet," says Robert Reischauer, president of the Urban Institute, a Washington research group. He estimates that after a few years, revenues would reach $5 billion a year at the most.

Higher-income people already pay more into Medicare than those with lower incomes. Unlike Social Security taxes, the Medicare payroll tax has no ceiling on the amount of earnings subject to it.

Another way to trim costs, reportedly under discussion by the conferees, would impose a copayment on home healthcare. Currently, patients do not have to pay anything for this Medicare benefit. The goal is to encourage home care rather than more costly care in nursing homes and hospitals. Under the proposal, a senior receiving home care would pay $40 to $45 for each 60-day period. Medicare typically pays $2,700 to $3,000 for that care.

Some members of both parties oppose the copayment proposal as a burden for the poor.

Beyond debate on these ideas, the conferees have other hot-button splits to resolve. One is the size of the basic benefits. Both the House and Senate plans would require participating seniors to pay about $35 in monthly premiums and an annual deductible of $250 to $275 before getting a Medicare subsidy.

The Senate plan would cover half of an individual's annual drug expenditures between $276 and $4,500. Then that person would pay the next $1,300 in prescription drug costs. If the total drug bill soared above $5,813 into the "catastrophic" range, the individual pays 10 percent.

The House plan, on the other hand, would offer seniors a more generous 80 percent subsidy on drug expenses between $251 and $2,000. Then there would be no coverage for the next $2,900 of medications. After $4,900 of bills, catastrophic coverage at 100 percent begins.

Another point of contention is a House provision that would have government-run Medicare compete against private health plans to provide services in geographic areas. Democrats contend that this would turn Medicare into a voucher-type program. In addition, Republicans differ among themselves on this issue.

Analysts at the Heritage Foundation, a Washington think tank, predict that costs of the new prescription-drug program will escalate over the years. By 2030, the average household will pay $3,980 a year more in taxes, they estimate.

Heritage analysts also maintain that at least one-third of seniors who receive drug coverage through their former employer will lose that benefit and get a lesser Medicare benefit.

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