Means-testing Medicare

I’ve been thinking about this issue more since Friday’s duel to the death discussion with David Brooks, and have come to the conclusion that this is an even worse idea, on pure policy grounds, than even most liberals realize.

The usual argument against means-testing — which is entirely valid — is that it (a) doesn’t save much money and (b) messes up a relatively simple program. The reason it can’t save much money is that there are relatively few people rich enough to be able to afford major cost-sharing. Meanwhile, the good thing about Medicare, as with Social Security, is precisely that it doesn’t depend on your personal financial status — you just get it. Means-testing would turn it into something much more intrusive, like Medicaid.

But there’s a further point I haven’t seen emphasized: if you want the well-off to pay more, it’s just better to raise their taxes.

Wait, you say: won’t raising taxes reduce incentives to work and create wealth? Yes, it will (although such effects are greatly exaggerated in our political discourse.) But means-testing benefits does the same thing. Conservative economists love to point out that means-tested programs like food stamps in effect create high marginal tax rates for low-income families, since they lose benefits if they work and earn more. Well, means-testing Medicare would do the same thing: your reward for a life of hard work and accumulation will be higher copays and deductibles.

http://krugman.blogs.nytimes.com/2011/07/24/means-testing-medicare/

Before you know it the means test could be changed so that your premiums are so high you can't afford it.