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Muddled Thoughts on Medicare - From Me!

My colleague Tim Noah thinks the Senate Republicans have completely undercut their economic argument on taxes with their proposal to extend payroll tax relief. He’s right!

The Senate Republican proposal is a counter-offer to the Democrats’, which would reduce payroll taxes for everybody who pays them, and then cover the cost of that by imposing higher income taxes on people who make more than $1 million annually. Republicans have attacked that proposal, arguing (among other things) that it would chill economic activity – specifically, by penalizing “job creators.”

But the Republicans are now proposing to pay for payroll tax relief (albeit less than the Democrats have proposed) by asking millionaires to pay the full cost of premiums in Medicare Part B, which is the part of Medicare that pays for doctor visits and outpatient care. As Tim points out, the distinction may have some moral significance to conservatives, since it’s closer to reducing a government benefit than imposing a new tax. But from an economic standpoint the two would have roughly equivalent effects. By putting forward this proposal, Senate Republicans have acknowledged, implicitly, that the Democratic proposal wouldn’t really kill jobs.

But what would the proposal mean for Medicare? That’s a trickier question.

Medicare is like Social Security, in that its political resiliency reflects its universal character. Everybody pays into the program. Everybody benefits from it. Historically that has protected the program from straightforward attacks. Just ask Newt Gingrich, who (appropriately) still has not lived down his vow to let the program “wither on the vine.”

Universality has also kept Medicare strong. You can tell by comparing it to Medicaid, whose constituency of poor and disabled people lack the same political power. Not coincidentally, Medicaid is famously and chronically underfunded. One result is low reimbursements, which discourages doctors from seeing Medicaid patients, which in turn makes it harder for the people on Medicaid to get timely care.

That said, Medicare already deviates from the universal model in some important ways. The taxes that support the program are based on income, which means that rich people end up paying more into the program than poor people do. (Social Security works in the same way.)

In addition, Medicare Part B already has higher premiums for wealthier seniors. During the debt ceiling negotiations, President Obama proposed increasing those premiums even more. Now Republicans effectively want to do the same thing, although – as far as I can tell – they’d go a bit farther. If they have their way, seniors making more than $1 million will pay the entire premium for Part B, something no seniors do currently.

So the question is… does that Republican proposal push Medicare too far away from universalism? By making millionaires fully responsible for their Part B premiums, does it cross some critical threshold? And once that principle is established, will lawmakers eager to cut spending in the future simply lower the threshold – until everybody but the very poor are paying premiums, effectively turning Medicare, or at least its outpatient portion, into a welfare program?

It's hard to answer these questions definitively and I'm not going to try. (Sorry, but sometimes even longtime health care students like me have mixed feelings about policy.) But I certainly those concerns are legitimate, enough that Democrats should resist this proposal. Asking very rich seniors to pay a little more for Medicare wouldn’t be the end of the world, but it should be done so carefully – and with some hesitation, particularly when other, preferable alternatives are still part of the discussion.