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Reducing Taxpayer Subsidies to Wealthy Medicare Recipients Is Sound Policy

December 11, 2015

By Robert Moffit

Medicare is accumulating an unfunded obligation of between $28 trillion and $37 trillion. This is the dollar amount of promises to Medicare beneficiaries that are not financed with dedicated revenues. Although comprehensive Medicare reform is in order, one small step to alleviate this burden would be a further reduction in taxpayer subsidies to Medicare’s wealthy recipients.

Historically, taxpayers, through payroll taxes and general revenues, have funded about 88 percent of Medicare’s total costs in any given year. The 2.9 percent payroll tax on workers’ wages is mandatory, and its revenues are earmarked for Medicare Part A, the Hospital Insurance (HI) program. Taxpayers, through general revenue transfers, finance 75 percent of the funding for Medicare physician services (Part B) and drug coverage (Part D). Beneficiary premiums finance the remaining 25 percent of these medical costs. In sharp contrast to Medicare Part A, Medicare Parts B and D are voluntary programs. No person is forced to enroll and pay the taxpayer-subsidized premiums.

Representative Fred Upton (R–MI), chairman of the House Energy and Commerce Committee, recently unveiled a proposal that would require individuals with an annual income of $1 million and couples with an annual income of $1.5 million to pay 100 percent of their Medicare Parts B and D premiums. Representative Upton’s proposal expands on current policy. Both the Medicare Modernization Act of 2003 (MMA) and the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) require upper-income Medicare enrollees to pay higher premiums. This policy affects approximately 6 percent of the total Medicare population.

Read the full article at The Heritage Foundation: Reducing Taxpayer Subsidies to Wealthy Medicare Recipients Is Sound Policy