Medicare: Why You'll Pay More If This Proposal Becomes Law

Source: Medicare.gov.

More than 55 million people will receive Medicare benefits this year, making it one of the costliest government programs on the books. Yet the challenge that policymakers face is how to clamp down on government spending on healthcare without simply shifting the burden of rising healthcare costs onto the Americans that Medicare is supposed to serve. Unfortunately, that line can be a tough one to walk, and as you can see in the latest proposed budget from the Obama administration, the temptation to include provisions that lead to increased costs for many Americans often proves to be too attractive to resist.

Source: Office of Management and Budget.

Earlier this month, President Obama's budget proposed measures that would reduce the cost of Medicare, as well as Medicaid and other programs from the Department of Health and Human Services, by almost $400 billion during the next decade. Many of those measures centered on reducing reimbursements to a wide range of healthcare providers, including hospitals, nursing homes, and health maintenance organizations.

Yet a surprising number of the proposals targeted Medicare recipients themselves, seeking to have them pay more for their own care. Let's take a look at how these provisions could increase the amount you pay for healthcare under Medicare, and what you can do to protect yourself.

What you'd pay for Medicare under the proposed budget
The budget's measures to boost its financial stability would lead to a host of new charges and price increases for Medicare participants. For instance, Medicare currently has a deductible for Part B medical insurance of $147 per year, and that amount automatically rises along with the costs of the Medicare program. Under the budget, that deductible would rise by $25 for new participants beginning in 2019, and further $25 increases would take effect in 2021 and 2023. Current participants wouldn't pay higher amounts, leaving future beneficiaries to bear the roughly $3.7 billion cost of the larger deductibles between now and 2025.

Similarly, those with premium Medicare supplemental insurance policies would pay a surcharge on their Part B premiums of about 15% beginning in 2019. The measure, which resembles the so-called "Cadillac tax" provisions for private health insurance, could raise as much as $4 billion during the next decade.

Source: Medicare.

The budget would also raise co-payments on certain services. Those who receive low-income subsidies for brand-name drugs under Medicare Part D would pay double the co-pay that they currently do, trying to encourage greater use of equivalent generic medications, and hoping to save $8.9 billion in the process. Similarly, a new co-payment of $100 would apply to home health services starting in 2019, potentially raising about $830 million between now and 2025.

Making Medicare means-testing more of a reality
Yet the biggest portion of the savings that the Obama budget intends to generate from greater cost-sharing among participants would come from upper-income Americans in the program. Currently, most people pay Part B premiums of $104.90 in 2015, which is about 25% of the actual costs that Medicare Part B has to pay. Those who earn above certain income levels -- currently $85,000 for singles and $170,000 for joint filers -- have to pay higher percentages of those costs, topping out at 80%.

Source: Medicare.

Under the budget proposal, though, the lowest tier would see its share of costs rise from 35% to 40%, which would increase premium costs by about $21 per month. From there, new tiers would apply at various income thresholds, kicking in at 52.5%, 65%, 77.5%, and 90% of average per-person Medicare expenditures. Similar measures would affect Part D premiums, as well. The administration believes that those provisions alone would cut $66 billion from Medicare's budget during the next decade.

Source: Medicare.

The net effect of this proposal would be to implement further means-testing of Medicare. Moreover, with the proposal freezing the income thresholds until fully one-quarter of all beneficiaries pay income-related surcharges, the budget would take advantage of the slow but steady impact of inflation to help boost long-term premium revenue.

Most people agree that the size and scope of Medicare is so immense that some form of reform is needed in order to make the program more manageable and efficient. Yet for older Americans already struggling to make ends meet financially, putting any more of the burden of covering healthcare costs on their shoulders could prove to be the last straw. Policymakers need to consider those impacts in coming up with the best solutions in any future debate about Medicare reform.