What Is the Medicare Catastrophic Coverage Act of 1988?

The Medicare Catastrophic Coverage Act of 1988 (MCAA) was a government bill designed to improve acute care benefits for the elderly and disabled, which was to be phased in from 1989 to 1993. The Medicare Catastrophic Coverage Act of 1988 was meant to expand Medicare benefits to include outpatient drugs and limit enrollees' copayments for covered services. It was the first bill to significantly expand Medicare benefits since the program's inception. Although the bill passed easily with initial support, the House and Senate repealed it a year after it passed in response to elderly people’s widespread criticism of the bill.

Key Takeaways

  • The MCCA was repealed a year after it passed due to widespread criticism.
  • Some found the wording of the bill surrounding payment structures to be confusing, and so they pushed against it.
  • Many people find it hard to support changes to Medicare taxation as they feel that since they are paying out-of-pocket for their premiums anyway, they shouldn't be taxed an additional percentage.

Understanding the Medicare Catastrophic Coverage Act of 1988 (MCCA)

The MCCA was a supplemental premium that individuals eligible for Medicare Part A paid to finance the expanded coverage because of high federal budget deficits at the time. This supplemental premium was progressive, meaning that payments were gradual. For this reason, it was designed not to cause hardship for less wealthy enrollees. These two characteristics represented a departure from previous methods of financing social insurance programs in the United States.

One reason the bill failed was the lack of comprehensive information and clear communication in promoting this iteration in U.S. healthcare reform. The widespread misunderstanding of payment plans led to distrust and pushback against the bill.

MCCA and Medicare Wages

Medicare is a complex and weighty federal program that taxpayers help pay with Medicare wages. These are generally taken out of the paychecks of U.S. employees on a regular basis. Controllers and individuals withhold a percentage from annual income.

For 2020, the Medicare tax is 1.45% on the first $200,000 of wages—$250,000 for joint returns or $125,000 for married taxpayers filing a separate return. According to Code Sec. 3101(b)(2), for wages that exceeded $200,000—still $250,000 for joint returns or $125,000 for married taxpayers filing a separate return—Medicare tax rises by 0.9% to 2.35%.

Medicare tax is similar to social security tax, which is also taken out of employees’ paychecks. For 2020, the social security tax was 6.2% on the first $137,700 of wages, putting the maximum tax at $8,537.40. Employers also pay a 6.2% tax on behalf of employees. The Social Security tax rate is assessed on all types of income that an employee earns, including salaries, wages, and bonuses.