Obama Budget Squeezes Medicare—and Wealthier Seniors

President Obama's budget proposal to create a $634 billion fund to finance healthcare reform stomps on plenty of special interest toes. One target group: Some seniors may experience unwelcome changes to their healthcare benefits and costs.

Wealthy individuals earning more than $85,000 would reportedly be asked to shell out higher premiums for their Medicare drug coverage starting in 2011, a change that would affect about 2.3 million of the roughly 45 million Medicare enrollees. In addition, the budget proposal would halt the higher payments that the government gives insurers who cover Medicare beneficiaries through private Medicare Advantage plans. That would undoubtedly mean higher premiums and reduced benefits for some of the 10 million or so beneficiaries enrolled in such plans.

Originally, opening up the Medicare program to private Medicare Advantage plans was intended to help save Medicare money while offering seniors extra benefits like vision and dental coverage. But it hasn't worked out that way. In fact, the government pays Medicare Advantage plans 14 percent more per person than it does for people enrolled in traditional Medicare.

Even though equalizing Medicare Advantage payment rates may squeeze some seniors, plenty of experts support the change. Financing the higher payments has increased Part B premiums—the ones that cover doctor's visits—for everyone, they argue.

But the change would likely cause some pain in the near term. "Some plans that are in it for the short run and the quick buck will definitely drop out," says Paul Precht, director of Policy and Communications for the Medicare Rights Center. Since Medicare Advantage plans are managed-care plans with networks of providers, seniors may have to endure the hassle of switching doctors and finding new labs and the like (although if they opt to join traditional Medicare, which doesn't have networks, this disruption may be limited). In addition, seniors can expect to see fewer "zero premium" plans that offer private coverage for the same cost as their Medicare Part B premium, says Precht.

Advocates for seniors are less thrilled about the proposal's requirement that wealthy seniors pay more for their drug coverage, even though some seniors already pay higher Part B premiums. The concern is that the higher premiums may drive seniors who don't need any pricey drugs out of the program altogether, leaving poorer, sicker seniors behind and driving up their costs. Moreover, given the thousands of plans offering various levels of coverage for different prices already, says Vicki Gottlich, senior policy attorney with the Center for Medicare Advocacy, segmenting the program further "could be an administrative nightmare."