Sen. Lieberman’s Medicare Proposal
Writing in a Washington Post op-ed this morning, Sen. Lieberman summarized a Medicare reform proposal he said he intends to introduce in the near future. While the details remain unclear, it appears that most of his proposed solutions have previously been analyzed in CBO’s March Budget Options document:
- Increasing the Medicare eligibility age to 67 by two months per year, beginning in 2014. CBO’s Mandatory Spending Option 18 was scored as saving a net $124.8 billion; the savings to Medicare itself would be greater, but would be offset by greater federal spending on new insurance subsidies for individuals aged 65-67, who would migrate to Exchanges if they could not enroll in Medicare. Versions of this proposal were included in Rivlin-Ryan plan and the House Republican budget; however, both of the latter proposals delayed increasing the retirement age for 10 years.
- Simplifying the Medicare benefit by unifying the Part A and Part B deductibles, introducing a uniform level of cost-sharing, AND limiting the ability of Medigap plans to provide first-dollar coverage. CBO’s Mandatory Spending Option 21, which incorporated BOTH the uniform cost-sharing and Medigap restrictions, was scored as lowering spending by $92.5 billion over ten years. Versions of this proposal were included in the Fiscal Commission, Rivlin-Ryan, and Rivlin-Domenici deficit reduction plans.
- Increasing the Part B premium to 35 percent of Medicare physician spending; the level was originally set at 50 percent when Medicare began in 1966, and was permanently lowered to 25 percent in 1997’s Balanced Budget Act. CBO’s Mandatory Spending Option 22, which would raise the premium share by 2 percentage points a year from 2012 through 2016, was scored as lowering spending by $241.2 billion over ten years. This proposal was included in the Rivlin-Domenici deficit reduction plan.
- Increasing the Medicare payroll tax rate for those earning over $250,000 by one percentage point. CBO has not scored this provision, so a precise revenue impact is difficult to estimate.
I also want to emphasize that these CBO estimates – which were based on in-house scenarios created by CBO analysts – may not reflect the proposal Sen. Lieberman actually introduces. In particular, the payroll tax increase has not been scored, and the amount of revenue it generates could depend in large part on whether or not the $250,000 threshold is indexed for inflation. The Medicare actuary previously noted that because Obamacare’s 0.9 percent payroll tax increase on income above $250,000 was not linked to inflation, it will go from affecting 3 percent of all workers in 2013 to an estimated 79 percent by 2080. Several other points to consider:
- The op-ed indicates that Sen. Lieberman’s proposal would save “at least $200 billion in Medicare spending over the next 10 years,” according to CBO. The Budget Options estimates cited above would appear to generate significantly more than that amount – so again, it’s unclear whether the proposal will vary from the earlier CBO specifications.
- The op-ed also suggests that the spending reductions will “extend…Medicare’s solvency by approximately 20 years.” The source of this estimate is unclear. According to the Medicare trustees report, the Hospital Insurance Trust Fund spent $249 billion in 2010 alone; the Trust Fund is projected to run deficits as far as the eye can see, and be completely exhausted (i.e., the paper IOUs in the Trust Fund fully spent) by 2024. How only $200 billion in savings (the number Sen. Lieberman cites) can extend the solvency of a Trust Fund spending $249 billion a year by two decades is highly uncertain at best.
- Sen. Lieberman’s payroll tax increase would represent yet another tax increase on the “wealthy,” many of whom are job creators. Specifically, income tax rates are scheduled to jump from 35% to 39.6% in 2013, and payroll tax rates are scheduled to jump by another 0.9% that same year, thanks to a provision in Obamacare raising the payroll tax rate to 3.8% for income above $250,000. That means individuals are already facing a federal marginal tax rate (combined income and payroll) of 43.4%. State and local taxes could easily raise marginal rates over 50% – and that’s BEFORE the additional 1% tax increase Sen. Lieberman proposes. Remember too that President Obama wants to raise taxes still further by limiting itemized deductions for “wealthy” taxpayers, meaning that if these proposals are enacted, individuals with income above $250,000 could well be facing federal marginal tax rates (income and payroll) of 50%, even before state and local taxes are taken into account.
- At a time when Democrats are talking about additional “stimulus” due to a flagging economic recovery, many would argue it’s exactly the wrong time to be raising taxes on job creators – yet this proposal attempts to do just that. (Do Democrats want to raise taxes just to finance new “stimulus?” With the federal government running trillion dollar deficits, I thought we were past the days of tax-and-spend liberals…)
While the details of the proposal are still very unclear and the tax increase in particular raises concerns, it’s encouraging that at least one Democrat has acknowledged that the current Medicare benefit structure is unsustainable and must be reformed. Here’s hoping other Democrats decide to act responsibly and join him.