Eroding Medicare Benefits Over Time

Robert Pear looks into Bush’s proposed budget and finds one way he proposes to curb spending:

Single people with annual incomes over $80,000 and married couples with incomes over $160,000 already have to pay higher premiums for the part of Medicare that covers doctors’ services. The income thresholds rise with inflation. Budget cuments show that Mr. Bush will propose a similar surcharge on premiums for Medicare’s new prescription drug benefit. In addition, the president will ask Congress to “eliminate annual indexing of income thresholds,” so that more people would eventually have to pay the higher premiums. The proposal, expected to raise $10 billion over the next five years, is one of many advanced by Mr. Bush in a $2.8 trillion budget that aims to eliminate the deficit by 2012. In his budget request, Mr. Bush expresses alarm about what he calls “the unsustainable growth of federal entitlement programs,” and he proposes savings in Medicare and Medicaid that far surpass what he or any other president has sought. The president contends that he can make the rule changes without any action by Congress. But Congress could try to block some or all of the changes … Administration officials said earlier this week that Mr. Bush would ask Congress to squeeze more than $70 billion from Medicare and Medicaid over five years. But the budget documents show that the actual figure is much larger: $101.5 billion of savings over five years … Lobbyists for hospitals, nursing homes and other health care providers plan a huge campaign to kill the president’s proposals, which they say will ultimately harm beneficiaries. Mr. Bush said his proposals would just slow the programs’ growth. “Our budget reduces Medicare’s average annual growth rate over five years to 5.6 percent, from 6.5 percent,” Mr. Bush said, while Medicaid would grow 7.1 percent a year, instead of 7.3 percent.

Senator Clinton is quoted as saying this is the wrong approach to reducing the deficits while some Republicans are saying it is OK that the affluent pay more of their Medicare costs. When the President claims this proposal will just slow the growth of spending, Dean Baker rebuts with:

This means that over time, more and more of the senior population would have to pay premiums that largely cover the cost of their Medicare. In other words, Medicare will no longer be government provided health care for most of the elderly population. How fast will the benefits phase out? Well in roughly twenty years, the means-testing would be hitting singles who are the same point in the income distribution as someone earning $40,000 a year today, and couples earning $80,000. In forty years, the point at which Social Security is first projected to face a shortfall, the means-testing would be hitting singles who are at the same point in the income distribution as someone earning $20,000 a year today, and couples earning $40,000. In other words, under President Bush’s proposal many middle income elderly people would face the loss of their Medicare subsidy before Social Security faces any funding shortfall. A bit further out, and only the poor would still receive any subsidy through the Medicare program.

Simply put – failure to index the nominal payments is the same thing as allowing gradual reduction in the real value of benefits. If that is what the Republican Party wishes to do – let them just be honest about it.

Update: Menzie Chinn sees that the White House is assuming that the cost of the Afghan and Iraq wars will fall to zero by 2010 as he points to this story:

Administration officials also exclude some potentially expensive items. Their request, for the first time, attempts to show the true cost of the wars in Iraq and Afghanistan in the coming fiscal year, $145 billion, but includes just $50 billion for fiscal 2009 and nothing thereafter.

In other words, smoke and mirrors. The same story plays out the silliness from certain free lunch supply-siders:

Republicans countered that the tax cuts are critical to maintaining a healthy economy and that a balanced budget is not possible without them. Raising taxes …. won’t help balance the budget – it will slow the economic growth that is creating the new jobs of tomorrow and increasing revenue to the federal government,” House Minority Leader John A. Boehner (R-Ohio) wrote in an essay distributed yesterday by his office. “Keeping our economy strong and promoting fiscal responsibility will get the job done. Raising taxes won’t.”

Golly gee – we haven’t seen an economy that continued to grow after we raised tax rates in such a long time. After all, the 1990’s were so last century!