Rand Paul’s Medicare Shorthand

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Kentucky’s Republican Senate candidate Rand Paul is in a spot of trouble over a comment he made about how to shore up Medicare. Speaking at a town hall in September 2009, Paul said “a $2,000 Medicare deductible would solve a huge amount of problems.” His Democratic opponent, Jack Conway, has seized on the statement, highlighting it in a television ad, to suggest Paul is out of touch with Kentucky’s seniors.

Paul has responded by saying the Conway campaign’s is “distorting” his views. Now, Paul is pivoting from the deductible discussion to one about premiums. Specifically, he suggested in a speech yesterday that richer Americans should pay higher Medicare premiums. According to the AP:

In his speech to supporters at the picnic, the tea party-backed Paul delved into the Medicare issue by floating the notion that wealthier people cover more of their expenses.

“If you own a racehorse like my opponent, or if you’re Bill Gates, do you think maybe you should spend more and pay more for the cost of Medicare?” Paul said, adding that taxes won’t adequately cover Medicare costs.

What Paul neglected to mention is that existing Medicare – and Medicare policy under the Affordable Care Act – already does this, albeit imperfectly. Currently, Medicare enrollees pay Part B premiums crudely adjusted for income. Beneficiaries earning more than $85,000 this year – $170,000 for couples – will pay at least 44% more than the Part B standard premium of $110. Individuals earning more than $214,000 this year will pay $353.60 per month for Part B premiums.

The Affordable Care Act freezes these income thresholds until 2019, meaning more and more seniors will pay higher Part B premiums. This provision, which will affect 2% of beneficiaries, according to the Centers for Medicare and Medicaid Services, is expected to generate $25 billion by 2019. The ACA also reduces Medicare Part D subsidies for higher-income seniors, a provision expected to save $11 billion by 2019.

This system is not perfectly progressive. As the Urban Institute noted in a July report on Medicare and the ACA, depending on which bracket seniors fall into, the percentage of income they will spend on Part B premiums varies. The Medicare income adjustments are like giant steps spaced far apart, compared to the gradual ramp of federal subsidies to help non-seniors buy insurance beginning in 2014. But the point is that existing Medicare and the ACA adjust premiums to account for income.

Paul is right when he says that higher premiums or higher deductibles would help improve the financial outlook for Medicare, by the way. (The question is whether seniors can afford these changes.) Of course, this kind of straight talk only endangers a candidate politically, especially in a midterm election in which the senior vote is typically a larger proportion of total votes than in a presidential election year. Medicare is one of the most volatile issues in politics. Touch it and you risk being electrocuted – just look at the flack Democrats have taken for cutting $500 billion out of Medicare, even though they didn’t raise the eligibility age or cut any guaranteed benefits. But if members of Congress are ever to talk seriously about the deficit and spending, it’ll be hard for them to turn a blind eye to entitlement programs like Medicare. This program alone accounts for 13% of the 2010 federal budget.

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