THE PART B of Medicare that helps pay doctors' bills is financed partly by patient premiums, partly out of general revenues. In the early 1980s, under pressure from the Reagan administration, Congress changed the mix between the two. The old system had tried to tie premiums roughly to ability to pay by raising them each year the same percentage as Social Security benefits. That was fine except that it left the premiums paying a declining share of soaring Part B costs. The new system, a partial transfer of responsibility, required that premiums be raised enough each year to cover 25 percent of costs.
The Medicare section of this year's budget agreement created an enormous furor, yet in the end it mainly just preserved that ratio. The substantial "hit" that the elderly were finally forced to absorb as their share of deficit reduction was in that sense not a hit at all but an extension of current law. Even that was difficult to pass, and partly for cause; the increases will be more than some recipients can easily afford. Congress has indeed cut the likely deficits for the next five years, but it still hasn't figured out a rational approach to the share of the budget -- about a third and rising -- represented by benefits to the elderly, mainly through Social Security and Medicare.
The right way to reduce the future pressure that these programs continue to represent would be to subject a larger share of Social Security benefits to the income tax; the poor who don't pay the tax would be unaffected. Neither party has been willing to do this, nor to appear to be threatening Social Security benefits in any other way. That has driven them to Medicare, where for nearly 10 years they have mainly (and healthily) put cost-cutting pressure on hospitals and doctors. This year they were forced to put the arm on patients as well.
Here again, the right approach would have been to size contributions to income, but the last time Congress tried that was in catastrophic health insurance, whose progressive financing touched off such an uproar that the program was repealed in less than a year. To achieve their goal of raising the patients' share of program costs to 30 percent, the budget summit negotiators thus proposed across-the-board increases for all recipients in premiums and other payments, but with the proviso that Medicaid should make the payments for the poor and near-poor. The House rejected that when it voted down the summit agreement. The plan that passed, while retaining most of the good Medicaid provisions, then scaled the payments back to 25 percent of costs.
That's better from the Treasury's standpoint than allowing them fall to a still lower level; still, it's hard on some recipients. In a sense, what Congress now has on its hands in Medicare is a program that neither it nor the patients can afford, and that's a problem the budget agreement didn't solve.