Archived Article: Washington Update - Bush Tax Cuts May Cost Beneficiaries Their Health Benefits (Copyright Center for Medicare Advocacy, Inc.)

TAX CUTS MAY COST MEDICARE BENEFICIARIES
THEIR HEALTH BENEFITS

INTRODUCTION
President Bush is promoting a $1.6 trillion tax cut proposal as a benefit to all Americans. But a closer look reveals that Medicare beneficiaries lose out as a result of the proposal. The tax cut and the budget blueprint offered by the Administration are based on a raid of the Medicare Trust Fund. If such a raid occurs, Medicare beneficiaries will be left without the protection they currently have.

RAIDING THE MEDICARE PART A SURPLUS TO FUND A TAX CUT
Medicare Part A, which covers hospital, skilled nursing facility, and some home health care, is funded through a payroll tax paid by both employers and employees. Money from the tax goes into a special Part A Trust Fund created by the Medicare statute. Concerns over the solvency of the Trust Fund have diminished recently. The Trustees projected on March 19, 2001 that the Fund would remain solvent until 2029. While the Trust Fund currently has a surplus, more money will be needed for Part A benefits as the baby boomers retire and the number of Medicare beneficiaries increases.

Medicare Part B, which covers doctors' visits, durable medical equipment, and some home heath services, is financed through a combination of premiums and general tax revenues. By law, Part B premiums must subsidize twenty-five percent (25%) of Part B costs. Medicare beneficiaries currently pay $50 per month for Part B premiums. The remainder of the money for Part B comes from general revenues included in the budget.

The President keeps promising that Medicare funds will be used only for Medicare and, at first blush, they will be. However, his budget proposal does not separate revenues and expenditures for Medicare Parts A and B, as is required by law. Instead, the budget plans to take $526 billion of the "surplus" from the Part A Trust Fund over the next ten years to pay for Part B services. As a result, several things will happen:

Instead of protecting Medicare money, the budget expedites a Medicare fiscal crisis. The Part A surplus will be reduced substantially, so that the Part A Trust Fund will run out of money sooner. Projections are that, if the money is taken from the surplus, the Trust Fund would run out of money ten years sooner than the Medicare trustees predict.

The government will need $526 billion fewer dollars from general revenue to pay for Medicare Part B expenses. This frees up for other uses $526 billion from general revenues that would otherwise have been spent on Medicare. The $526 billion funds about one-third of the proposed $1.6 trillion tax cut.

As the Trust Fund runs out of money, there will not be a source of money to pay for Medicare-covered services. The tax cut will reduce general revenues substantially, so there won't be general funds to pay for Medicare, either. The cost of the program will have to be borne by the beneficiaries, and/or the benefit package will have to be reduced.

TAX CUTS IN LIEU OF A MEANINGFUL PRESCRIPTION DRUG BENEFIT
Another alternative for the $526 billion the President intends to raid from the Medicare Part A Trust Fund is to use it for a limited prescription drug benefit. Again, if the government's total income from taxes is reduced, where will the money for expanded Medicare coverage come from? If the proposed tax cuts were more limited, however, money would be available from general revenues to pay for a prescription drug benefit that is included in Medicare.

The following numbers show how the proposed tax cut, targeted at the wealthiest Americans, comes at the expense of Medicare beneficiaries.

Over ten years, the wealthiest 1% of Americans, whose incomes contribute 20% of all federal taxes, will receive about 43% of the tax cut - a total of about $774 billion. This number alone is more than the amount the President wants to take from the Part A surplus to pay for Part B services, and could be used to pay for doctors' visits under Medicare. But there is more.

The President has also proposed setting aside $48 billion over four years for a very limited prescription drug proposal that would help only the poorest beneficiaries in those states that enacted a state prescription drug plan. The cost of a comprehensive prescription drug plan that is included in Medicare and is available to all beneficiaries is projected at $885 billion.

The amount of the tax benefit the wealthiest will get under the President's tax proposal, $774 billion, when added to the cost of the President's limited drug plan over 10 years, is more than the projected cost of a universal comprehensive drug benefit in the Medicare program.

CONCLUSION
Medicare beneficiaries lose on all accounts. The security of Medicare payments for hospital services is weakened when money is taken from the Part A Trust Fund to pay for Part B services. The security of Medicare payment for doctors' services is weakened when general tax revenues are no longer available to pay for those services. And the hope for a comprehensive Medicare prescription drug benefit is squashed as the money that would be available for such a benefit is given instead to the wealthiest 1% of taxpayers. Medicare beneficiaries lose out to tax cuts.