Medicare cost shifting: The next big worry for seniors
CHICAGO (Reuters) - Seniors can breathe a little easier now that Social Security benefit cuts are no longer part of this year's federal budget debate. But the other shoe hasn't dropped in Washington. That would be Medicare cost shifting.
Last week, President Barack Obama's administration ditched one of its worst retirement policy ideas, the "chained CPI" for Social Security cost-of-living adjustments (COLAs). But we still don't know if the president or lawmakers will renew efforts to shift a higher share of Medicare costs to seniors as part of budget talks this year.
Healthcare costs already eat up a sizable part of Social Security benefits for many seniors, so if Medicare out-of-pocket costs jump while COLA formulas hold steady, seniors will be taking one step forward and two steps back.
The chained CPI is a way of determining annual Social Security COLAs. It's different from the current yardstick, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which measures the cost of a general market basket of goods and services. The "chained" index takes into account changes in consumer buying behavior when prices rise - namely, that they buy cheaper goods.
The president proposed adopting the chained CPI in last year's budget plan as a bargaining chip for deficit reduction negotiations with Republicans. Last week word leaked out that he's dropping the idea, probably because there's no chance for a big deficit deal.
It's the right decision for the wrong reason. Although proponents call it a "trim" to Social Security benefits, the chained CPI would have been far more consequential over time for many seniors.
A chained CPI would reduce COLAs by three-tenths of a percentage point annually, according to the Social Security Administration. That sounds small, but the chained CPI snowballs over time because of compounding, and has its biggest impact on the very old: After 10 years, it's a cut of 3 percent, 6 percent after 20 years, and 9 percent after 30 years.
One-third of today's seniors rely on Social Security for 90 percent or more of their income, according to the National Academy of Social Insurance. Two-thirds count on it for more than half of their income. For these folks, a chained CPI would mean substituting cheaper food or skipping meals, turning down the heat or cutting pills in half.
Meanwhile, advocates for seniors are waiting to learn if the Administration - or Republicans in Congress - will again serve up proposals from last year's budget that would shift a greater share of Medicare costs to beneficiaries, including:
- Higher deductibles: The Part B annual deductible, currently $147, would be boosted for new enrollees in three $25 increments, for a total of $75 by 2021.
- Higher home health charges: New beneficiaries would pay $100 for five or more home health visits that weren't preceded by a hospital stay or nursing home.
- Medigap surcharge. New beneficiaries who buy supplemental Medigap policies with first-dollar coverage would face a surcharge equal to 15 percent of the average Medigap premium.
- More high-income surcharges. Wealthier seniors already pay substantially more for Part B and Part D premiums. Last year, President Obama proposed expanding these surcharges, and the idea likely will turn up again in this year's budget, according to advocates with sources close to the White House.
Currently, individuals with income of $85,000 and above ($170,000 for joint filers) pay a higher share of the total premiums. The president's plan would boost some of those fees, and gradually pull in seniors with lower incomes. Research by the Kaiser Family Foundation indicates individuals with incomes of $47,000 and higher ($94,000 for joint filers) would be affected.
The idea behind these cost-shifting measures is "more skin in the game" - the notion that asking patients to pay more will make them savvier consumers more likely to cut out wasteful use of healthcare services. Joe Baker, president of the Medicare Rights Center, a non-profit consumer advocacy group, says it's a dubious proposition.
"Seniors certainly will forgo care, but the problem is they won't know if they are forgoing something that is needed or unnecessary ... so more of them ultimately wind up in the doctor's office with serious problems. And once you're in the system, you simply do what the doctor tells you to do."
At any rate, seniors already have plenty of skin in the game. Thirty-seven percent of the average Social Security check went for healthcare in 2010, up from 21 percent in 1992, according to a recent analysis of Medicare records by Social Security Works, an advocacy coalition.
Widening the lens a bit, healthcare consumed 15 percent of total of Medicare households' budgets in 2010, three times the portion in younger households, according to the Kaiser Family Foundation. Kaiser reports that the biggest healthcare bite occurs at the oldest age. For Medicare beneficiaries over age 80, it is 18 percent of total household income, compared with 12 percent for 65- to 69-year-olds.
The bite will be deeper in the years ahead if the cost of healthcare jumps. National health expenditures have flattened out over the last few years, and that has been reflected in Medicare. The monthly Part B premium, for example, held steady this year at $104.90, and it's actually down from its peak of $115.40 in 2010. But healthcare experts aren't ready to declare a long-term victory in the battle to contain healthcare costs.
That's where Medicare reform efforts should be focused - not on getting a higher share of revenue from seniors' pockets.
(The opinions expressed here are those of the author, a columnist for Reuters.)
For more from Mark Miller, see link.reuters.com/qyk97s
(Follow us @ReutersMoney or here
Editing by Douglas Royalty)
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