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In fiscal bargaining, buzz over 'means testing' grows louder

In the latest parrying and positioning over a deal to avert the year-end “fiscal cliff” of spending cuts and tax increases, leading congressional Democrats now say they’re willing to trade some increased means testing of Medicare in return for the Republicans accepting tax increases.

In Capitol Hill language, “means testing” (or more precisely “income relating”) means targeting benefits, payments or tax breaks to people who fall below a certain income level, or denying benefits, payments or tax breaks to people who are “too wealthy” to need them.

President Obama's conciliatory tone Monday came a day after the president and Republican Speaker of the House John Boehner had their first one-on-one meeting. NBC's Chuck Todd reports.

Many federal benefits and tax breaks are means tested.

To take one example, the $1,000-per-child tax credit – which is worth about $57 billion this year to families – is phased out for married taxpayers filing a joint return when their income reaches $110,000.

For the most part, Medicare isn’t a means-tested program. Once you reach age 65, if you have worked and paid Medicare taxes for 10 years, then you’re eligible for benefits, no matter how high your income is.

Since 2007, Medicare has required higher-income people who are enrolled in the program to pay more for their benefits.

For Medicare Part B (which covers doctors’ office visits and outpatient care) people who make more than $214,000 a year pay three times as much in premiums as do people who make $85,000 or less.

There are five levels of Part B premiums, with the highest being $3,836 a year.

Right now, only a small percentage of Medicare recipients must pay the premiums: 5 percent of Part B enrollees and 3 percent of those enrolled in Medicare Part D, which pays for prescription drugs.

Leading congressional Democrats – Senate Democratic Whip Dick Durbin, Senate Finance Committee chairman Max Baucus and Sen. Claire McCaskill of Missouri, as well as Rep. Emanuel Cleaver, the chairman of the Congressional Black Caucus -- have indicated they’re open to more means testing in the Medicare program as part of an accord to avoid the fiscal cliff.

On Meet the Press, Durbin indicated Sunday that means testing is far preferable to lifting the Medicare eligibility age.

“I do believe there should be means testing. And those of us with higher income in retirement should pay more. That could be part of the solution,” Durbin said. “But when you talk about raising the Medicare eligibility age, there's one key question: What happens to that early retiree? What about that gap in coverage between the workplace and Medicare?”

Rep. Emanuel Cleaver, D-Mo., the Washington Post's Eugene Robinson, and "Meet the Press" moderator David Gregory join a conversation on means testing in Medicare.

In bargaining terms, Obama wouldn’t be surrendering anything by agreeing to steeper means-testing. He already called for exactly that last February in his Fiscal Year 2013 budget proposal.

Obama proposed that beginning in 2017, premiums for Medicare Parts B and D increase by 15 percent. His proposal would maintain the same income threshold to determine who must pay higher premiums until 25 percent of Part B and D beneficiaries have to pay the premiums. That would happen in about the year 2035.

Obama’s plan says this change will reduce “the Federal subsidy of Medicare costs for those beneficiaries who can most afford them” and would save about $28 billion over 10 years.

Although the current means testing of Medicare originated in President George W. Bush’s 2003 Medicare law, which created the prescription drug benefit, it’s a concept that Democrats such as Bill Clinton and Sen. Dianne Feinstein of California have supported in the past.

And Medicare means testing is an idea that GOP presidential contender Mitt Romney spoke up for – in a somewhat different form – during the campaign, when he said in his first debate with Obama that “to save Medicare… we have to have the benefits high for those that are low income, but for higher-income people, we're going to have to lower some of the benefits.”

Obama’s form of means testing wouldn’t cut benefits for higher-income Medicare recipients; instead, it would make them pay more for the benefits they got.

But health policy expert Paul Van de Water, a Senior Fellow at the Center on Budget and Policy Priorities, a liberal think tank in Washington, points out that in budget terms, requiring higher-income people to pay more for Medicare achieves the same deficit reduction as does providing lower Medicare benefits to upper-income people -- “plus it’s a whole heck of lot simpler to do.”

Some liberal groups and Democratic members of Congress continue to think it’s a bad idea.

Last February, when Republicans proposed a version of Obama’s proposal, Sen. Ben Cardin, D-Md., said that charging higher premiums would be “a dangerous path for us to go down” because it could lead more affluent seniors to opt out of Medicare and undermine public support for the program.

Ethan Rome, executive director of Health Care for America Now, a coalition of labor unions, liberal groups and organizations such as the American Academy of Pediatrics, said Monday, “Proposals to further increase means testing of Medicare beneficiaries miss the mark. How much more do we want seniors to pay for their health care?”

He said, “Our goal shouldn't be to shift Medicare costs to seniors and make health care more expensive. It should be to make the wealthiest 2 percent of Americans pay their fair share in taxes. That is the fair way to raise revenue.”

But even though it would raise a relatively modest amount of revenue (less than 2 percent of the $1.6 trillion in deficit reduction that Obama is seeking) increased Medicare means testing stands a good chance of being part of any deal between Obama and Republican leaders.

“President Obama may well have to accede to other Republican demands as well,” Van de Water said. “And of the items that people like (GOP Senate leader) Sen. (Mitch) McConnell have put on the table, Democrats may view this one as less bad than several of the others.”

He added, “If someone pointed a gun at my head and said I have to choose either expanding the Medicare income-related premiums or raising the eligibility age, I’d choose raising the premiums without hesitation.”