What many people missed—no surprise, because it went unpublicized—is a far-reaching change that links regular Part B premiums to income for the first time in Medicare’s history.

Starting Jan. 1, millions of Medicare recipients will begin paying more than their lower-income peers for coverage, and by 2010, when the higher premiums are fully phased in, these wealthier seniors will be paying two to three times the standard Part B premium.

This cost difference is the result of “means-testing,” and here’s how it works: Until now, all Medicare beneficiaries paid a quarter of the costs of the Part B medical benefit program, usually through a deduction from their Social Security checks. The other three-quarters of the cost was federally funded. Starting in January, all eligible seniors still will pay 25 percent of the tab, but individuals with retirement income above $80,000 will pay a surcharge of 10 percent, 25 percent, 40 percent or
55 percent, depending on their income.

For example, by 2010, after the three-year phase-in, an individual with an adjusted income between $100,000 and $150,000 ($200,000 to $300,000 for married couples) will pay half of the actual Part B costs, or about $200 per month. That’s twice the traditional one-quarter share of the costs.

The AFT research and information services department has flagged several potential problems with this system.

■  A shift of costs to individual retirees weakens the social compact between the government and workers.

■  Eventually, the higher costs of means-testing will probably lure wealthier seniors out of the program to seek lower premiums in the private insurance market.

■ Means-testing will continue to raise premiums for those who already will have paid the most, even if their medical expenses are lower.

■ Although the $80,000 individual threshold is scheduled to rise with inflation each year, President Bush has proposed eliminating the inflation adjustment in his fiscal year 2007 budget. That would, in effect, lower the threshold over the years and bring more and more middle-income Americans into the realm of higher premiums.

Taken as a whole, the problems in this law threaten the future of the Medicare program.

“It’s the first step to undermining the social insurance nature of Medicare, whereby everybody pays their taxes and premiums, and everybody gets their Medicare benefit,” says AFT lobbyist Bill Cunningham. “What this change really is designed to do is to cut back support for Medicare among the affluent Americans who will be hit with higher Part B premiums. Over time, the entire Medicare program could lose political support.”

Besides the implications of these big issues, the new system also looks like it will become a thorn in the side of many seniors because the Social Security Administration will use tax records to determine income levels for the surcharge. Seniors won’t have to file any paperwork up front, but they will have to appeal Social Security’s income assessment if it’s wrong or if they experience a sudden drop in income. In that case, they would have to produce either an updated tax return or evidence that a major, life-changing event (like divorce or loss of pension) significantly reduced their income.

For more information on means-testing for Medicare Part B, visit www.medicare.org or call 800/MEDICARE.