THE ADMINISTRATION is keeping some bad ideas in the budget it will send Congress later this month while dropping some good ones. One of the latter is a proposal on Medicare carried to the Office of Management and Budget by Dr. Otis Bowen, new secretary of health and human services. The Medicare program for the elderly and disabled has two parts, one that pays hospital costs, the other doctor bills. The second part is optional. To enroll, an eligible person must pay part of the cost through monthly premiums. The department's proposal was to help cut the deficit by raising premiums, but only for the better-off. For the first time that would base access to Medicare partly on a means test, a test of ability to pay.
The plan was rejected at OMB on political grounds. Medicare is the companion program to Social Security. They are the two largest domestic spending programs, serving a seventh of the population, making up more than a fourth of the budget, and the administration has taken an enormous pounding over the last five years from those who say it wants to vitiate them. The president has denied this, and put Social Security off limits to his budget-cutters. OMB officials feared that in an election year a proposal to means-test Medicare premiums would only reopen the issue of his intentions.
Why not use ability-to-pay as the standard in judging and structuring Social Security and Medicare? The answer from those opposed is that these are not ordinary government programs, under which benefits are conferred, but social insurance systems under which they are partly earned. Everyone pays money in to get benefits out. The need for these forms of insurance -- against old age, disability, declining health -- is great. Any tampering so that some part of the population feels shut out will cost the systems needed support.
But Social Security has been means-tested since its inception. The benefit structure has always been progressive, meaning tilted in favor of the poor. Benefit structures are measured by replacement ratios -- how much of a person's last paycheck is replaced by his first benefit check. The ratio is higher for low earners than for high. The system is also financed in part through the income tax, and it, too, is of course progressive. The earned income tax credit was enacted in the 1970s for low-income wage-earners with children to compensate them through the income tax system for the Social Security taxes they must pay. This puts income taxes into Social Security at one remove. Now there is also an income tax on up to half the benefits of higher-income Social Security recipients; the proceeds are put directly into the Social Security trust fund.
If means are taken into account in the Social Security financing and benefit structures, why not in Medicare premiums? A House Ways and Means subcommittee proposed the step last year. It was set aside in full committee. The need is for balance. The concept of social insurance is both healthy and useful, and needs to be preserved. But the poverty rate among the elderly has declined in recent years (precisely as Social Security benefits have increased), the deficit is large and better that Medicare be trimmed a little along the lines of need than in some cruder ways. Congress should think about it.