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Retirement Insights

Congress and the President examine the future of health care for seniors.

Medicare. It's been around so long most Americans take it for granted. But before 1965, over half the elderly had no health care coverage. If they had to go to a doctor, they paid for it out of pocket. If they needed surgery, they paid for that too, or their family did.

Back then, a major operation for grandma could put a whole family in debt. That should explain why Medicare's enactment had such enormous popular support in the 1960s, and why it continues to be a crowd-pleaser.

FINANCING MEDICARE. It's no surprise that recent talk about Medicare's financial problems has seniors tossing and turning at night. Younger folks are nervous, too — worried they'll have to pay their parents' health care bills and afraid there will be no Medicare when they retire.

This year, Congress and the President took a serious look at Medicare in their deliberations on the federal budget and almost went too far.

Everyone agrees that Medicare will need retooling for the future, when the number of workers contributing payroll taxes will decline in relation to the number of seniors collecting benefits; currently four-to-one, the ratio will drop to two-to-one at the height of baby-boom retirement in the year 2030. But changes of the magnitude proposed recently — in a program so vital to so many — should undergo extensive public hearings and research. Neither took place during the budget process.

BENEFIT AGE. One Senate proposal, defeated only after the President, labor, and seniors' groups promised all-out war, would have gradually raised the eligibility age for Medicare benefits from 65 to 67. This would have caused real hardship for older workers who need to retire — due to physically strenuous jobs or chronic illnesses — but can't afford health insurance. Only 30 percent of retirees have coverage that's employer-paid. If the Medicare age rises, costs will rise for those employers who do provide retiree health coverage, leading many to eliminate plans or increase retiree cost-sharing.

BAD FIX. Another bad Medicare proposal that was finally dropped from the budget bill after massive opposition was an income test for Part B (medical insurance). Under this plan, premiums for seniors with incomes above $50,000 ($75,000 for couples) would go up — for some, way up. A senior with a $100,000 income, for example, would pay $180 a month next year for Part B, compared with $45.10 for most other beneficiaries.

Of course, a lot of Americans think the rich should pay more. They may not realize that higher-income people already contribute more tax dollars to Medicare than others do. Even though they pay more, most of the wealthy think Medicare is worth it. An income test, however, could make them think they're paying too much for what they get, and they might leave the program, draining it of needed revenue and vital political support.

Much to AFSCME's dismay, the final budget bill included a variety of new and untried options to traditional Medicare, many of which could easily entice away younger, healthier and wealthier seniors and help destroy Medicare's huge cost-effective risk pool.

TRICKLE DOWN. Also, income tests often have a way of trickling down. If, in the future, Congress found itself needing more money to balance the budget, a $50,000-income threshold could be reduced to $30,000, requiring more seniors to pay higher premiums.

Ultimately, Congressional leaders decided it was politically unwise to adopt huge cuts and fundamental changes in Medicare without public hearings and in a budget deal that also gives big tax breaks to the rich. So, Congress opted instead for short-term corrections and $115 billion in cuts (compared with the $270 billion proposed by the Republican leadership in 1995). When the Balanced Budget Act of 1997 passed in July, Medicare got a clean bill of health until 2007.

The law also created a bipartisan commission to study Medicare's long-range problems. Over the next two years, the commission is expected to hold field hearings to consider all the options for keeping Medicare financially sound for the future and able to meet the needs of an aging population.

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