As with the proposal Congressman Paul Ryan (D) of Wisconsin has made to reform Medicare, these phase-out provisions in general would only apply to people who are presently younger than 55. Also, the thresholds for the phase-outs would be annually adjusted for inflation and would reflect at the time the provisions become law the inflated value of $75,000 and $175,000 in 2011 dollars.
The Social Security phase-out proposal is similar to the phase-out for such payments under Canadian law. The Canadian phase-out (what Canadians call a claw-back), which was enacted many years ago, is not considered controversial and is generally accepted as fair.
And the Medicare proposal is structured so that even a high-income person who elected to self-insure would not see all of his or her assets completely depleted as a result of the cost of health care. This point can be illustrated as follows. Once a retired person’s investable assets (including assets held in a pension plan, but not a principal residence) produced less than $175,000 in retirement income, the person would be entitled to some support from Medicare, and if such person’s investable assets failed to produce $75,000 in retirement income, the person would be entitled to full Medicare benefits.
With a 5 percent annual return of earnings and capital gains, the $175,000 threshold would translate into approximately $3.5 million in investable assets, and the $75,000 threshold would translate into approximately $1.5 million in investable assets. So, as a practical matter, a retired person with less than approximately $1.5 million in investable assets would likely be entitled to full Medicare benefits. Consequently, someone who self-insured would not see his or her investable assets reduced below approximately $1.5 million as a result of medical bills.