Means-testing in Medicare.

The Medicare Prescription Drug, Improvement, and Modernization Act (MMA) of 2003 introduces means-testing of premiums and benefits in two ways. It will means-test the Part B premium, setting higher premiums for better-off seniors. More importantly, it will offer much more generous drug benefits, at low or zero premiums, to lower-income beneficiaries. This paper argues that additional means-testing could improve Medicare's financial picture. It proposes a strategy in which future Medicare beneficiaries with higher incomes will pay for cost-increasing but quality-improving new technology, possibly with prefunding that begins before retirement.