spending

Congress, Obama Ready to Change Medicare

Entitlement reform, long resisted, will be part of the high-stakes fiscal cliff debate.

Here is one big surprise following President Obama's win over Republican nominee Mitt Romney: Medicare will play a central role in talks aimed at settling tax and spending issues before the U.S. plunges over the fiscal cliff.

Democrats have been mostly united in wanting to spare the program, which offers health care and drug coverage to older Americans. At the same time, Republicans have been reluctant to consider Obama's effort to raise tax rates for high earners.

So putting Medicare on the table, which the Obama administration has quietly done, means the sacred cows from both parties will be in play. That's a strong signal that Congress and the White House are serious about negotiating a grand bargain, if not in the lame-duck session now under way, then in the early months of the new session that gets started in January.

Even if they're not part of a deal on the fiscal cliff, Medicare changes are coming. Delay will only put off the inevitable and add billions to costs. Program costs, already a big driver of federal spending, will continue to grow for years, from $519 billion in 2010 to $929 billion in 2020, and from 3.6% of GDP in 2010 to 5.1% of the economy in 2030. The number of beneficiaries will reach 80 million, from 47 million now, and the number of workers paying into the system will fall.

Here's what to expect when a Medicare deal is reached:

A pushed-back age for enrollment, to 67 from 65. This change won't apply to folks who are close to retirement -- most likely those who are 55 and older. It will phased in for others. At the end of the phase-in, the eligibility ages for Social Security and Medicare will match.

More means testing. Those with incomes over $85,000 -- twice that for couples -- already pay higher premiums for doctor coverage and the prescription drug program, and they'll probably be on the hook for even bigger payments. The new charges will be for new participants as well as for those who are already enrolled. It is possible, but not likely, that Congress will set a lower income for the higher costs to kick in rather than raise rates for those above the current limit.

Perhaps a higher copayment, meant to encourage shopping around for care.

Requiring drug makers to offer bigger discounts for prescription medications. The government could save $137 billion over 10 years if Medicare got the same markdown that the manufacturers give to Medicaid, which pays for health care for people with low incomes.

The formula for paying physicians will be changed to prevent cuts in service by doctors who threaten to stop seeing Medicare patients. The fix isn't likely to be permanent, but it will be long enough to prevent the year-to-year uncertainty that comes with short-term attempts to address the problem.

And here's one thing that won't happen: Vouchers that will allow participants to choose their own coverage. That Republican-backed trial balloon deflated quickly once Obama won a second term.

The timing is right for a big deal on the fiscal cliff, with Medicare, higher taxes and other high-risk items on the table. Making difficult decisions now gives both sides plenty of time before the next elections in 2014.

But the Medicare window won't be open long. If no agreement is reached in 2013, the next best change will come in 2017, when a new president comes to power. By then, of course, the system's finances would be even more out of whack than they are now.

Most Popular

Dying Careers You May Want to Steer Clear Of
careers

Dying Careers You May Want to Steer Clear Of

It’s tough to change, but your job could depend on it. Be flexible in your career goals – and talk with your kids about their own aspirations, because…
September 13, 2021
5 Top Dividend Aristocrats to Beef Up Your Portfolio
dividend stocks

5 Top Dividend Aristocrats to Beef Up Your Portfolio

The 65-member Dividend Aristocrats are among the market's best sources of reliable, predictable income. But these five stand out as truly elite.
September 14, 2021
7 Best Commodity Stocks to Play the Coming Boom
commodities

7 Best Commodity Stocks to Play the Coming Boom

These seven commodity stocks are poised to take advantage of a unique confluence of events. Just mind the volatility.
September 8, 2021

Recommended

Your Doctor is Retiring. Here's How to Find a New Physician
health insurance

Your Doctor is Retiring. Here's How to Find a New Physician

More doctors are considering quitting due to burnout from the pandemic. If you must find a new physician, get recommendations from friends and review …
September 24, 2021
Tax Changes and Key Amounts for the 2021 Tax Year
tax law

Tax Changes and Key Amounts for the 2021 Tax Year

Americans are facing a long list of tax changes for the 2021 tax year. Smart taxpayers will start planning for them now.
September 23, 2021
Pandemic Unemployment Benefits End — This Relief Is Still Available
health insurance

Pandemic Unemployment Benefits End — This Relief Is Still Available

You may be eligible for help with healthcare, your rent and more.
September 13, 2021
15 Things Retirees Should Buy at Costco
Making Your Money Last

15 Things Retirees Should Buy at Costco

From its house brand Kirkland Signature lineup to name brands and hidden gems, the warehouse club offers bargains aimed at mature shoppers.
September 8, 2021