Social Security and Medicare Reducing Benefits to Wealthy Americans

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What is Means Testing and Should it be Applied to Social Security and Medicare?
Many Americans are now hearing that “means testing” is the way to equate the perceived inequities in government benefits by having the top 1% of Modified Adjusted Gross Income (MAGI) earners pay more. Means testing typically refers to using financial adequacy (income) to determine eligibility for government programs. But, it’s important to remember that Social Security and Medicare aren’t welfare programs, but entitlements available to every U.S. citizen who has contributed to these programs during their working career, regardless of their net worth.

Did You Know that Medicare is already Means Tested?

In fact, the Medicare Modernization Act of 2003 established higher Medicare Part B premiums for individuals with $85,000 or more in annual income and joint filers with income over $170,000. They now have to pay $46.10 in addition to the 2011 standard premium of $115.40 for Medicare Part B. The government is already using income as the threshold to force some individuals, who they feel can afford to do so, to pay more for the same exact benefit.

In 2010, the Affordable Care Act (ACA) extended the income thresholds to Part C Medicare Advantage program and Part D prescription drug benefits. According to the White House, these changes could save $35.7 billion over the next 10 years. The ACA also froze the thresholds at 2010 levels through 2019, eliminating the inflation adjustment. Now the White House is considering extending that freeze past 2019, which could save an additional $20 billion over the next 10 years. Eliminating the inflation adjustment, means more and more Americans will be included in the means testing. As a result of these changes, affluent seniors who pay both Part B and Part D premiums could see those premiums rise from an average of $300 to $700 per month over the next 10 years.

What if We Apply Means Testing to Social Security?

It’s a little different story for Social Security. According to research done by Dean Baker, Economist and Co-Director of The Center for Economic and Policy Research (CEPR) and his colleague Hye Jin Rho, they found that most Social Security benefits go to relatively low and middle class people. In their article “The Potential Savings to Social Security from Means Testing”, they state:

  •  More than 75 percent of benefits go to individuals with non-Social Security incomes of less than $20,000 a year.
  • More than 90 percent of benefits go to individuals with non-Social Security incomes of less than $50,000 a year.
  • The average annual Social Security benefit received by all individual beneficiaries is $11,759.11.

So, will means testing Social Security benefits solve the budget issues? Unfortunately, NO. Politically, it might satisfy the masses, but the potential savings from a means test of Social Security benefits would be very limited, unless the testing is set at a lower income level, thereby including a much larger portion of the middle class. This would most likely not be a very popular option.

Unfortunately, means testing does nothing about “managing” the rising cost of health care – it simply passes the charges on to the beneficiaries. And since all senior citizens, affluent or not, have limited healthcare options, we are likely to see new products developed to respond to this new demand in the healthcare environment.

If you would like additional information regarding Social Security or Medicare benefits, please visit www.ssa.gov or www.medicare.gov.

As always, please feel free to contact me if you have questions or would like to discuss how means testing could affect your retirement plans.

 

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