About that conservative soft spot for means-testing

[reposted from 2/22]

Jonathan Cohn had some fun this afternoon with this tweet and article:

‏@CitizenCohn Huge scoop: White House endorses means-testing for Medicare. http://www.newrepublic.com/article/112506/david-brooks-obama-and-medicare …

--  the joke being that Obama's 2013 budget, released a year ago, proposed modest increases in the already-higher premiums that wealthy seniors pay for Medicare Parts B and D.  Legions apparently retweeted Cohn without pausing to note that the "scoop" was a year old and based on information that the White House publicized.

Cohn's post was prompted by David Brooks lambasting Obama for not offering serious entitlement cuts, such as means-testing, in current negotiations to replace the sequester (see Cohn's post for links).  Which highlights a rather odd fact: means-testing Medicare and Social Security has been a Republican talking point throughout the budget wars. They use it either, I imagine, for cover -- see, we're not just about cutting benefits for the poor -- or as a stalking horse for cutting benefits for everyone else. More on that later.

The funny thing about means-testing is that it's functionally equivalent (if arguably less efficient in some cases) to raising taxes on the wealthy, which is anathema to the GOP.  Another funny thing: people don't realize the extent to which benefits for the elderly are already means-tested -- or, if I'm using that term imprecisely, more expensive for the wealthy (and in one case, available only to the poor).  A few facts, then, about our core elderly benefits:

• Cohn flagged the fact that Obama plans to boost Medicare premiums for wealthy seniors. He took it as a given that premiums for Medicare Parts B and D are already means-tested. In four income tiers, seniors with incomes over $85k (for an individual) pay between $42 and $231 more per month than their less wealthy peers for Part B and between $12 and $67 more per month for Part D.


• The Affordable Care Act was funded in part by an 0.9% Medicare surtax on earned income and 3.8% surtax on investment income for taxpayers with incomes over $200k.  That is not strictly speaking means-testing -- but like means-testing, it alters the ratio of taxes paid to benefits received for the top two income brackets.


• Social Security benefits are means-tested in the sense that the more you pay in, the less, proportionately, you get back. Social Security is based on a taxpayer's average indexed monthly income (AIME), calculated over 35 years. We all get 90% of the first $761 of our AIME, but just 15% of AIME over $4586 (up to $8900, beyond which there's no tax or benefits).


• Medicaid picks up the tab for nursing home care for seniors -- once their assets are exhausted.  That's the ultimate means-testing -- you don't get hte benefit unless and until you have no more means.

To be fair, when some conservatives speak of means-testing, they have in mind more than progressive benefit formulas. Brooks, for example, in a conversation with Ezra Klein today, touted this proposal from Yuval Levin:

First, give less to the wealthy rather than take more from them. For Medicare, such means testing would mean giving prosperous older people fewer benefits rather than charging them higher premiums for the same benefits other elderly Americans get. Charging wealthy older Americans more, and then giving money back to them through an expensive and inefficient benefit, makes no sense. The goal should be to better target public benefits to those who need them.

How, exactly, do you grant people "fewer benefits" under Medicare other than by making it more expensive for them? Wealthy people want to be fully insured.  Are you simply going to give them crappy coverage under Medicare and send them into the private market to make up the difference, via a kind of Super-Medigap?  Why not just charge them more for the benefits that Medicare affords to everyone? Is cutting one end of the string really more efficient than cutting the other end?

A clue to why conservatives prefer cutting the benefit to raising its price perhaps lies in a system envisioned by Avik Roy and Douglas Holtz-Eakin, which would genuinely end Medicare as we know it. Roy and Holtz-Eakin would put all seniors on healthcare exchanges like those to be offered in the Affordable Care Act (albeit with many features they don't like, such as community rating and minimum coverage rules, stripped out). They would phase out subsidies for the wealthy:

our free-market roadmap involves a substantial redistribution of wealth, because it takes subsidies that now go to wealthy retirees, and redirects them to the poor

But that "progressive" goal is linked to ending the "Medicare guarantee" of affordable coverage for all:

the Swiss system’s goal of preventing individuals from spending more than 10 percent of their income on health insurance exposes the system excessively to health cost inflation; instead, the U.S. would be better off adopting a defined-contribution system, like the one proposed by Paul Ryan, in which insurance subsidies grow at a pre-defined, sustainable rate.

While the rich may get no health benefit at all from the state, the rest of us get a defined benefit and must rely on (and help drive) market forces to prevent that benefit from steadily diminishing relative to the real cost of insurance.  We must also make do without the Swiss system's government-imposed coverage rules, ban on insurer profits for basic health insurance, community rating, and caps on citizens' yearly out-of-pocket expenses. In short, while touting the Swiss system, Roy and Holtz-Eakin would do away with everything that makes the Swiss system fair and affordable.

I suppose, theoretically, you could have an eldercare system with adequate means-tested premium support (and regulation) that phased out for the wealthy.  But I think there is a social danger in having everyone pay dedicated taxes for a service that some do not receive.  Better to have a pared-back benefit for the wealthy -- such as, in Social Security, their 15% cut in AIME of income between $4586 and $9000 -- than no benefit at all.