Higher Earners Face Steep Hikes in Medicare Premiums

June 28, 2016

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Source: The Wall Street Journal

Nearly a third of all Medicare beneficiaries face a steep increase in their premiums next year, the result of a policy that in certain circumstances requires some beneficiaries, including higher earners, to shoulder the burden of rising costs.

The government health-care plan’s trustees projected in a report Wednesday that premiums would rise by as much as 22% for wealthier beneficiaries of Medicare Part B, which covers doctor visits and other types of outpatient care.

The projected increase results from an intersection of the rules governing Medicare and Social Security, said Tricia Neuman, senior vice president and an expert on Medicare at the Kaiser Family Foundation.

Under the Social Security Act’s “hold harmless” provision, Medicare can’t pass along premium increases greater than what most participants would receive through Social Security’s annual cost-of-living adjustment. That adjustment is expected to be just 0.2% in 2017 thanks to low inflation. As a result, Medicare couldn’t pass along any premium increase greater than the dollar increase in Social Security payments to the estimated 70% of beneficiaries who will qualify for hold harmless treatment in 2017, Ms. Neuman said.

Instead, Medicare must spread much of the projected increase in its costs across the remaining 30%. Those who are paying the standard $121.80 a month for Medicare Part B this year would be charged $149 a month in 2017 if the trustees’ predictions come to pass.

Higher earners would pay more. The trustees project individuals earning between $85,001 and $107,000 and couples earning between $170,001 and $214,000 would have their 2016 monthly premiums rise from $170.50 a person this year to about $204.40 in 2017. For those earning more than $214,000, or $428,000 for couples, the projected increase is to about $467.20 a month, from $389.00 in 2016.

This isn’t the first time there has been such a disparity in Part B premiums between Medicare recipients.

Last year, Congress staved off a 52% premium increase for Medicare beneficiaries not covered by the hold harmless provision via a deal in the budget agreement that raised premiums by 16% for them instead. Those covered by the hold harmless provision, in contrast, pay $104.90 a month—the same amount they paid in 2014 due to the fact that there was no Social Security cost-of-living increase in 2016.

The projected increase in Part B premiums affects several other groups of Medicare beneficiaries, including those who receive Medicare but have deferred or aren’t eligible for Social Security benefits. It also would apply to those who are new to Medicare in 2017 and lower-income Medicare beneficiaries whose premiums are paid by state Medicaid programs.

In the latter case, the increase would be paid by Medicaid, Ms. Neuman said.

Paul Van de Water, senior fellow at the nonprofit Center on Budget and Policy Priorities, said the final Social Security cost-of-living adjustment won’t be known until October. If inflation rises by more than the trustees expect between now and then, it could “reduce the spike in the premium” for those who aren’t held harmless, he said.

Acting Administrator for the Centers for Medicare and Medicaid Services Andy Slavitt said at a news conference Wednesday, “We will continue to monitor the data and explore administrative options as needed.”

The Medicare trustees are projecting that the base Medicare Part B premium will reset for everyone at $124.40 a month in 2018, because they expect higher Social Security cost-of-living increases.

Medicare covered 55 million people last year, according to the trustees’ report. Part B covered nearly 51 million. In 2017 Medicare is expected to have 58.7 million total participants and 53.5 million in Part B.

If the trustees’ predictions come to pass, all Medicare beneficiaries will see their annual Part B deductibles rise from $166 in 2016 to $204 in 2017. “Everyone on Part B will be liable for the full increase,” says Ms. Neuman.

The report projects that monthly Medicare Part D premiums—which cover prescription drug costs—will rise from $34.10 to $40.59, while the annual Part D deductible will jump from $360 to $400. Those increases will apply to all Medicare Part D beneficiaries. Individuals with incomes above $85,000 (and couples earning more than $170,000) pay higher Part D premiums.

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