Medicare Mix: Costs Affect Us All

My mother-in-law received a $250 check in the mail from Medicare last month. It was her “onetime rebate” for reaching the doughnut hole in her prescription drug coverage – that was for 2010. This year she’ll get a 50% reduction in the cost of brand-name scripts when she reaches the hole. An escalating discount to 75% by 2020 will ensue.

This new provision is brought to us by Obamacare and while the current and not too distant senior population will benefit from it, other seniors will ultimately be paying for it. Specifically, those most commonly reported now as the “richest” and “most affluent” seniors.

How much affluence do you have to have to be hit? The answer to that question actually began in 2007, when new provisions dictated that higher income Medicare recipients would be charged more for Medicare Part B premiums. As of January 2011, the new healthcare law extends the income concept to Medicare Part D. The law also freezes the higher income thresholds through 2019 which does not take inflation into consideration; a pitfall which many forecasters say will put more and more seniors into the higher end category.

In 2011 Medicare Part B premiums will average around $115 per month. Higher income seniors will pay between $162 and $372 per month. The Part D premium average is $32 per month while affluents will pay between $44 and $101. The premise behind these changes is one of “means-testing” – those that have the means will pay more to help others that don’t.

The CMS (Centers for Medicaid & Medicare Services) currently provides that less than 2 million seniors will be paying the higher premium for Part B in 2011, and less than 1 million will be affected by higher Part D costs. Further estimates provide that by 2019, 20% of new Part B enrollees will pay higher premiums.

Current debates on the subject question whether the ‘richest’ seniors will make a mass exodus to the private sector if they begin paying $400 or more per month for Medicare coverage. While that, and a likely advent of new products specifically designed for this senior niche could occur, high income seniors would also have to consider the lost values of guaranteed issue.

There is another extremely important point to consider in this Medicare mix: How can less than 3 million high income seniors, roughly 16% of the total senior population, sufficiently subsidize these provisions?

A 2007 study done by the National Center for Policy Analysis further provides, the ratio between Medicare premiums and Social Security checks will be beyond astounding if deficit challenges prevail as noted below:

Medicare premiums consumed less than 10% of the average new retiree’s Social Security check in 2006.

By 2030, if Medicare deficits are covered by increasing premiums, premiums will consume more than half of the average retiree’s Social Security check.

By the 2070, premiums will almost consume the entire Social Secu­rity check of an average new retiree.

One final thought… all wage earners, regardless of age, contribute to the funding of Medicare through taxation. The NCPA study suggests that Medicare payroll taxes could reach double digit rates if the current situations remain un-remedied.

Kurt Rusch  CLU, ChFC

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