Midnight Follies

Those interested in better public policy should forget about tougher ethics standards, term limits or even campaign finance reform. What is needed is a mandatory bedtime for Congress, because it often hatches its most bizarre policy initiatives when the hour is late and the moon is high on Capitol Hill. The Senate Finance Committee illustrated this when, just before midnight on Wednesday, it took a sensible concept—requiring upper-income Medicare recipients to contribute a bit more toward their highly subsidized health insurance—and transformed it into an inequitable, unadministerable and ineffectual policy.

The mechanism originally proposed for accomplishing this reasonable objective was to require upper-income participants to pay higher monthly Medicare premiums, just as the president’s 1994 health reform plan and the Republicans’ 1995 Balanced Budget Act had called for. But in the midnight darkness, some Republicans became skittish, reasoning that increased Medicare premiums might be mistaken for that most dreaded affliction—a tax increase. To accommodate their phobias, the committee amended the proposal, at the last instant, to require upper-income Medicare participants to pay higher deductibles—the amount individuals must pay out of their own pockets before Medicare coverage kicks in.

Unlike an increase in the Medicare premium, which could be spread equitably across all upper-income participants, income-related deductibles would hit only the unhealthy wealthy—the rich who incurred large medical expenses. Compared with their sick upper-income classmates, the healthy wealthy would be twice blessed, once with their good health and once with the low amounts they were required to pay for the protection provided by their Medicare coverage.

For those running Medicare, income-related deductibles would be an administrative nightmare. How would the carriers with whom the government contracts to pay Medicare bills know what deductible to apply to each participant’s claims? For 95 percent of the beneficiaries, the correct amount would be $100; but for the remaining 5 percent the deductible would rise to as much as $1,700 for the richest seniors. Tax return information could be examined to identify the Medicare participants who were likely to be subject to the higher deductible, but the most current tax data would be two years old and, therefore, inappropriate. From her 1995 tax return, which would be the one used to determine the deductibles for 1997, a 66-year-old Medicare participant might appear wealthy. But she may have more modest means in 1997 because her spouse retired or passed away in 1996 or because her income in 1995 was inflated by capital gains realized from selling the family farm.

Even if the administrative problems could be overcome, income-related deductibles are likely to be ineffectual on several fronts. Virtually all of the upper-income participants have either a retiree wrap-around policy provided by a former employer or a privately purchased Medigap policy that picks up the Medicare deductible. The costs of this supplementary coverage would increase as a result of the new policy but not solely, or even largely, at the expense of wealthy policyholders. The burden would be borne by employers or distributed through higher premiums across rich, middle-class and poor Medigap policyholders alike.

Nor would higher deductibles do much to make Medicare participants more prudent purchasers of medical services. Even if they had to pay the higher deductibles themselves, the richest 5 percent of the elderly are not likely to cut back on their use of services because they were not constrained budgetarily.

The intent behind the Finance Committee’s midnight madness was commendable, for there is little reason to provide large Medicare subsidies to the most affluent 5 percent of senior citizens. It should be enough to provide these fortunate seniors with access to a non-cancelable insurance plan with very low administrative costs at an actuarially fair price. When the full Senate takes up the Medicare portion of the reconciliation bill, let’s hope that the debate occurs before sunset. Then there may be some chance that the committee’s bill will be modified to require the wealthy elderly to bear a bit more of Medicare’s burden through the fair, feasible and effective mechanism of relating Medicare’s premiums to participants’ incomes.