Order Code RL32582
CRS Report for Congress
Received through the CRS Web
Medicare: Part B Premiums
Updated May 5, 2006
Jennifer O’Sullivan
Specialist in Social Legislation
Domestic Social Policy Division
Congressional Research Service ˜ The Library of Congress

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Medicare: Part B Premiums
Summary
Medicare is the nation’s health insurance program for individuals aged 65 and
over and certain disabled persons. Medicare consists of four distinct parts: Part A
(Hospital Insurance [HI]); Part B (Supplementary Medical Insurance [SMI]); Part C
(Medicare Advantage [MA]); and Part D (the new prescription drug benefit added
by the Medicare Prescription Drug and Modernization Act of 2003 [MMA]). The
Part A program is financed primarily through payroll taxes levied on current workers
and their employers; these are credited to the HI trust fund. The Part B program is
financed through a combination of monthly premiums paid by current enrollees and
general revenues. Income from these sources is credited to the SMI trust fund.
Beneficiaries can choose to receive all their Medicare services through managed care
plans under the MA program; payment is made on their behalf in appropriate parts
from the HI and SMI trust funds. A separate account in the SMI trust fund will
account for the new Part D drug benefit which will be implemented beginning in
2006; Part D will be financed through general revenues and beneficiary premiums.
When Medicare began in 1966, the Part B monthly premium paid by
beneficiaries was set at a level to finance 50% of Part B costs; general revenues
financed the remainder. Legislation enacted in 1972 limited annual premium
increases. As a result, beneficiary contributions dropped to below 25% of program
costs by the early 1980s. Since the early 1980s, Congress regularly voted to set Part
B premiums at levels to cover 25% of program costs. The Balanced Budget Act of
1997 (BBA 97) permanently set the Part B premium at 25% of program costs.
Certain low-income beneficiaries are entitled to assistance in paying their Part B
premiums. Beginning in 2007, certain high income Medicare enrollees will pay a
higher percentage of their Part B premiums.
The 2006 monthly Part B premium is $88.50, a 13.2% increase over the 2005
premium of $78.20. The premium increase is attributable to increases in benefit
costs as well as increases needed to assure adequate trust fund reserves. In May
2006, the Medicare Trustees announced that the estimated premium for 2007 will be
$98.20, an 11% increase over the 2006 amount. The actual premium amount will not
be announced until this fall. This report will be updated when the 2007 premium is
announced.

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Contents
Financing Medicare Part B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Calculation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Premium Calculations for 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Preliminary Calculations for 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
History of Part B Premium Calculation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Annual Update . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Home Health Benefit Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Assistance for Low Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
MMA and DRA Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Premiums for High-Income Enrollees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Changes in 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Part B Deductible . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Current Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Premium Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
President’s Budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
List of Tables
Table 1. Monthly Part B Premiums, 1966-2006 . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Table 2. Percentage of Part B Costs Paid
byHigh-Income Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

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Medicare: Part B Premiums
Financing Medicare Part B
Calculation
Medicare Part B is financed through a combination of beneficiary premiums and
federal general revenues. Beneficiary premiums equal 25% of estimated program
costs for the aged. (The disabled pay the same premium as the aged.) Federal
general revenues account for the remaining 75%.
The 2006 monthly Part B premium is $88.50, an increase of $10.30 (13.2%)
over the 2005 amount. The increases reflect the increase in the costs of health care
services funded under Part B. Increases in premium costs are somewhat outpacing
those in the private health insurance market (estimated at 9.2% in 2005).1
Individuals receiving Social Security benefits have their Part B premium
payments automatically deducted from their Social Security benefit checks; however,
an individual’s Social Security check cannot go down from one year to the next as
a result of the annual Part B premium increase.2 Social Security payments are subject
to an annual cost-of-living adjustment or COLA; the 2006 increase of 4.1%
represents an average monthly increase of $39 per retired worker.3
Premium Calculations for 2006
Each year, Medicare actuaries estimate total per capita incurred costs for the
following year. These amounts are established prospectively. Actual spending for
the year maybe different; and, as a result, income for the year may not equal program
costs. Trust fund assets must be maintained at a level to cover a moderate degree of
variation between actual and projected costs. This is achieved through a contingency
margin adjustment. The following outlines the calculations for 2006.
1 Kaiser Family Foundation, Survey Finds Steady Decline in Businesses Offering Health
Benefits to Workers Since 2000, press release, Sept. 14, 2005.
2 Specifically, the law provides that if the Part B premium increase is greater than the dollar
increase in the annual Social Security cost-of living adjustment, the premium owed by the
individual would be reduced to the amount needed to assure no reduction in the Social
Security cash payment.
3 The monthly Social Security check is rounded down to the next lowest multiple of $1 if
it is not already a multiple of $1. The Part B premium is deducted before rounding down
the monthly benefit payment.

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CRS-2
The monthly premium for 2006 was calculated as follows. Total monthly
benefit costs of $398.86 were reduced by $71.54 for required beneficiary cost-
sharing. The resulting amount of $327.32 was increased by $5.34 for administrative
expenses and reduced by $3.26 for interest earnings. This total of $329.40 was
further increased by $24.40 for the contingency margin adjustment; this has the effect
of increasing the reserves. Twenty-five percent of the resulting net per capita amount
of $353.80 (rounded) yields a 2006 premium amount of $88.50.
The premium increase from 2005 to 2006 is attributable to a number of factors.
The Centers for Medicare and Medicaid Services (CMS, the agency that administers
Medicare and Medicaid) stated that the most important single factor is the rapid
growth in the volume and intensity of Part B services. Recent 2004 data shows these
factors playing a larger role than previously estimated. Increases in volume and
intensity for the two largest components of Part B were significant. The
volume/intensity increase for services paid under the physicians fee schedule was
6.3% in 2004 and is estimated at 5.6% in 2005 and 6.4% in 2006. (These figures are
substantially larger than the roughly 1% annual increases recorded from 1992-1999.)
The volume/intensity increase for outpatient hospital services was 6.8% in 2004 and
is estimated at 6.6% in 2005 and 3.8% in 2006. Growth in spending for these two
services accounted for most of the increase in Part B benefit payments. By extension
it also contributes to the increase in Medicare Advantage payments which are tied by
law to payments in fee-for-service Medicare.
Another factor contributing to the premium increase is the adjustment for the
contingency reserve. For several years, CMS reduced the otherwise applicable
premium to draw down an anticipated surplus. However, this changed for 2005.4
Actuaries now anticipate the reserves are insufficient to cover contingencies;
therefore an amount needs to be added to the otherwise applicable premium amount.
As was noted in the 2005 trustees report,5 Medicare actuaries feel that a reserve ratio
of 15%-20% is sufficient to protect against unforseen contingencies.6 The ratio was
at 20% or above through the end of 2002. However, at the end of 2004, the level was
at 6%.
CMS attributes the change in direction of the contingency adjustment to faster
than anticipated expenditure growth as well as enactment of two pieces of legislation
which increased spending after the Part B premium was announced for the year.
These laws were the Consolidated Appropriations Resolution (CAR, P.L. 108-7,
enacted in February 2003) and the Medicare Prescription Drug, Improvement, and
4 The significant premium increase for 2005 was, in part, intended to partially replenish the
trust fund assets. However, due to faster than expected growth in Part B expenditures, there
will be only a minimal increase in assets in 2005.
5 Boards of Trustees, Federal Hospital Insurance and Federal Supplementary Insurance Trust
Funds, 2005 Annual Report of the Boards of Trustees, Federal Hospital Insurance and
Federal Supplementary Insurance Trust Funds, Communication, Mar. 23, 2005.
6 The reserve ratio is defined as the ratio of excess of assets over liabilities to the following
year’s total incurred expenditures.

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CRS-3
Modernization Act of 2003 (MMA, P.L. 108-173). CAR increased physician
payments for 2003 and MMA increased physician payments for 2004.7
Preliminary Calculations for 2007
The 2006 premium calculation was based on current law provisions in effect at
the time the premium was announced. These provisions include a formula for
calculating the annual update to the physician fee schedule. Use of this formula
would have resulted in a reduction of 4.4% in 2006. However, the Deficit Reduction
Act of 2005 (DRA, P.L. 109-171, enacted February 8, 2006) overrode the scheduled
reduction. This had the effect of increasing overall Part B costs, and by extension,
the Part B premium. Since the 2006 premium amount had already been announced,
the increase will first be reflected in the 2007 premium.
On May 1, 2006, the Medicare trustees issued their annual report,8 which
included a preliminary estimate of the 2007 Part B premium. The trustees estimated
that the premium will be $98.20, an 11% increase over the 2006 amount. The
increase is needed, in part, to increase the contingency reserve. The trust fund assets
are expected to fall below an acceptable level by the end of the year. This reflects
both the DRA physician payment provision and higher spending in 2005 than
previously estimated.
It should be noted that the premium estimates for 2007 and subsequent years are
based on current law provisions, including the formula for calculating the annual
payment update for physicians services. Application of that formula is expected to
result in a negative update for a number of years. If Congress overrides the update
for any year, as it has done for 2003-2006, this will result in higher premiums.

History of Part B Premium Calculation
Annual Update
When the program first went into effect in July 1966, the Part B monthly
premium was set at a level to finance 50% of Part B program costs. Legislation
enacted in 1972 limited the annual percentage increase in the premium to the same
percentage by which Social Security benefits were adjusted for changes in cost-of-
living (i.e., COLAs). Under this formula, revenues from premiums soon dropped
from 50% to below 25% of program costs. This was because Part B program costs
increased much faster than inflation as measured by the Consumer Price Index on
which the Social Security COLA is based.
7 For a discussion of these payment increases, see CRS Report RL31199, Medicare:
Payments to Physicians, by Jennifer O’Sullivan.
8 The Board of Trustees, Federal Hospital Insurance and Federal Supplementary Medical
Insurance Trust Funds. 2006 Annual Report of the Board of Trustees of the Federal Hospital
Insurance and Federal Supplementary Medical Insurance Trust Funds, May 2006.

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CRS-4
From the early 1980s, Congress regularly voted to set Part B premiums at a level
to cover 25% of program costs, in effect, overriding the COLA limitation. The 25%
provisions first became effective January 1, 1984. General revenues covered the
remaining 75% of Part B program costs. Congress took this general approach again
in the Omnibus Budget Reconciliation Act of 1990 (OBRA 90). However, OBRA
90 set specific dollar figures, rather than a percentage, in law for 1991-1995. These
dollar figures reflected Congressional Budget Office (CBO) estimates of what 25%
of program costs would be over the five-year period. Program costs grew more
slowly than anticipated, in part due to subsequent legislative changes. As a result,
the 1995 premium of $46.10 actually represented 31.5% of program costs.
Omnibus Budget Reconciliation Act of 1993 (OBRA 93) extended the policy
of setting the Part B premium at a level to cover 25% of program costs for 1996-
1998. As was the case prior to 1991, a percentage rather than a fixed dollar figure
was used. This meant that the 1996 premium ($42.50) and the 1997 premium
($43.80) were lower than the 1995 premium ($46.10).
BBA 97 permanently set the premium at 25% of program costs. If Part B costs
increase or decrease, the premium rises or falls accordingly. (See Table 1 for a
history of Part B premiums.)
The Medicare Prescription Drug, Improvement, and Modernization Act of 2003
(MMA, P.L. 108-173) increased the Part B premium percentage for high income
enrollees, beginning in 2007. MMA would have phased-in the increase over five
years. However, DRA shortened the phase-in period to three years. (See discussion,
below.)
Table 1. Monthly Part B Premiums, 1966-2006
Monthly
Effective
Year
Governing policy; Legislative authority
premium
date
Fixed dollar amount; Social Security Amendments (SSA)
1966
$3.00
7/66
of 1965
1967
$3.00
Fixed dollar amount; SSA of 1965
Fixed dollar amount through March; Medicare
1968
$4.00
4/68
Enrollment Act of 1967. Beginning April: 50% of costs;
SSA of 1965
1969
$4.00
50% of costs; SSA of 1967
1970
$5.30
7/70
50% of costs; SSA of 1967
1971
$5.60
7/71
50% of costs; SSA of 1967
1972
$5.80
7/72
50% of costs; SSA of 1967
50% of costs; SSA of 1967 (COLA limit, added by SSA
of 1972, could have applied, but was not needed).
1973
$6.30
9/73
Limitations imposed by Economic Stabilization program
set 7/73 amount at $5.80 and 8/73 amount at $6.10.
50% of costs; SSA of 1967 (COLA limit, added by SSA
1974
$6.70
7/74
of 1972, could have applied, but was not needed)
1975
$6.70
Technical error in law prevented updating
1976
$7.20
7/76
COLA limit; SSA of 1972

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Monthly
Effective
Year
Governing policy; Legislative authority
premium
date
1977
$7.70
7/77
COLA limit; SSA of 1972
1978
$8.20
7/78
COLA limit; SSA of 1972
1979
$8.70
7/79
COLA limit; SSA of 1972
1980
$9.60
7/80
COLA limit; SSA of 1972
1981
$11.00
7/81
COLA limit; SSA of 1972
1982
$12.20
7/82
COLA limit; SSA of 1972
Tax Equity and Fiscal Responsibility Act of 1982
(TEFRA) had set 25% rule for updates in 7/83 and 7/84.
1983
$12.20
However, SSA of 1983 froze premiums 7/83-12/83 and
changed future updates to January.
1984
$14.60
1/84
25% of costs; TEFRA, as amended by SSA of 1983
1985
$15.50
1/85
25% of costs; TEFRA, as amended by SSA of 1983
1986
$15.50
1/86
25% of costs; Deficit Reduction Act (DEFRA) of 1984
1987
$17.90
1/87
25% of costs; DEFRA of 1984
25% of costs, Consolidated Omnibus Budget
1988
$24.80
1/88
Reconciliation Act of 1985
25% of costs, OBRA 87, plus $4 catastrophic coverage
1989
$31.90
1/89
premium added by Medicare Catastrophic Coverage Act
of 1988
25% of costs; OBRA 89. Medicare Catastrophic
1990
$28.60
1/90
Coverage Repeal Act of 1989 repealed additional
catastrophic coverage premium, effective 1/90
1991
$29.90
1/91
Fixed dollar amount; OBRA 90
1992
$31.80
1/92
Fixed dollar amount; OBRA 90
1993
$36.60
1/93
Fixed dollar amount; OBRA 90
1994
$41.10
1/94
Fixed dollar amount; OBRA 90
1995
$46.10
1/95
Fixed dollar amount; OBRA 90
1996
$42.50
1/96
25% of costs; OBRA 93
1997
$43.80
1/97
25% of costs; OBRA 93
1998
$43.80
1/98
25% of costs; OBRA 93 and BBA 97
1999
$45.50
1/99
25% of costs; BBA 97
2000
$45.50
1/00
25% of costs; BBA 97
2001
$50.00
1/01
25% of costs; BBA 97
2002
$54.00
1/02
25% of costs; BBA 97
2003
$58.70
1/03
25% of costs; BBA 97
2004
$66.60
1/04
25% of costs; BBA 97
2005
$78.20
1/05
25% of costs; BBA 97
2006
$88.50
1/06
25% of costs; BBA 97
Source: Various Annual Reports. The 2005 Annual Report of the Board of Trustees of the Federal
Hospital Insurance and Federal Supplementary Medical Insurance Trust Fund, Mar. 2005, and 70
Federal Register 55897, Sept. 23, 2005.

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CRS-6
Home Health Benefit Transfer
BBA 97 made a change which had the effect of increasing the Part B premium
over time. Prior to BBA 97, both Parts A and B of Medicare covered home health
services. Payments were made under Part A, except for those few persons who had
no Part A coverage. In order to extend the solvency of the Part A (hospital
insurance) trust fund, BBA 97 gradually transferred coverage of some home health
visits from Part A to Part B. Beginning January 1, 2003, Part A covers only post-
institutional home health services for up to 100 visits, except for those persons with
Part A coverage only, who are covered without regard to the post-institutional
limitation. Part B covers other home health services.
Assistance for Low Income
Certain low-income beneficiaries are entitled to assistance in paying their Part
B premiums. Eligible persons fall into one of the following three coverage groups:
! Qualified Medicare Beneficiaries (QMBs). QMBs are aged or
disabled persons with incomes at or below the federal poverty level.
In 2006, the monthly level is $837 for an individual and $1,120 for
a couple9 and assets below $4,000 for an individual and $6,000 for
a couple. QMBs are entitled to have their Medicare cost-sharing
charges, including the Part B premium, paid by the federal-state
Medicaid program. Medicaid protection is limited to payment of
Medicare cost-sharing charges (i.e., the Medicare beneficiary is not
entitled to coverage of Medicaid plan services) unless the individual
is otherwise entitled to Medicaid.
! Specified Low-Income Medicare Beneficiaries (SLIMBs). These
are persons who meet the QMB criteria, except that their income is
over the QMB limit. The SLIMB limit is 120% of the federal
poverty level. In 2006, the monthly income limits are $1,000 for an
individual and $1,340 for a couple.10 Medicaid protection is limited
to payment of the Medicare Part B premium (i.e., the Medicare
beneficiary is not entitled to coverage of Medicaid plan services)
unless the individual is otherwise entitled to Medicaid.
! Qualifying Individuals (QI-1). These are persons who meet the
QMB criteria, except that their income is between 120% and 135%
of poverty. Further, they are not otherwise eligible for Medicaid. In
9 The annual HHS poverty guidelines for 2006 are $9,800 for an individual and $13,200 for
a couple; the monthly figures are $817 for an individual and $1,100 for a couple. The
qualifying levels are higher because, by law, $20 per month of unearned income is
disregarded in the calculation. See [http://new.cms.hhs.gov/DualEligible/downloads/
2006DERate.pdf].
10 This is calculated the same way as the QMB level. See the preceding footnote.

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CRS-7
2006 the monthly income limit for QI-1 for an individual is $1,123
and for a couple $1,505. Medicaid protection for these persons is
limited to payment of the monthly Medicare Part B premium. The
program is currently slated to expire September 30, 2007.11
MMA and DRA Changes
MMA added a new drug benefit to Medicare Part D. It should be emphasized
that the cost of this drug benefit is accounted for separately and has no effect on the
Part B premium. MMA did, however, include two provisions directly affecting the
Part B premium calculation; an additional provision affects the calculation of the Part
B deductible. The MMA provision increasing the premium for higher income
enrollees was further modified by DRA.
Premiums for High-Income Enrollees
Since the inception of Medicare, all Part B enrollees have paid the same Part B
premium, regardless of their income level. For a number of years, proposals were
offered to increase the share of Part B costs borne by higher income individuals.
Many observers suggested that it was inappropriate for taxpayers to pay (through
general revenue financing) three-quarters of Part B costs for these persons. They
pointed out that low income and middle income working persons might be
subsidizing higher income elderly persons.
MMA increased the Part B premiums for higher income enrollees beginning in
2007. MMA would have phased-in the increase over five years. However, DRA
shortened the phase-in period to three years. In 2007, individuals whose modified
adjusted gross income (AGI) exceeds $80,000 and couples whose modified AGI
exceeds $160,000 will be subject to higher premium amounts. When fully phased-in,
higher income individuals will pay total premiums ranging from 35% to 80% of the
value of Part B (See Table 2). The term modified AGI means adjusted gross income
as defined under the Internal Revenue Code (determined without regard to specified
exclusions), increased by tax-exempt interest. In general, the taxable year to be used
is that beginning in the second calendar year preceding the year involved. Under
certain circumstances, an individual may request to have the determination made for
a more recent year.
11 In general, Medicaid payments are shared between the federal government and the states
according to a matching formula. However, expenditures under the QI-1 program are paid
for (100%) by the federal government (from the Part B trust fund) up to the state’s allocation
level. A state is only required to cover the number of persons that would bring its spending
on these population groups in a year up to its allocation level. Any expenditures beyond that
level are paid by the state. Total allocations are $400 million for both FY2006 and FY2007.
The program was initially slated to terminate Dec. 31, 2002, but was extended several times
and is now slated to expire Sept. 31, 2007.

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CRS-8
The current law provision which specifies that a beneficiary’s check can not go
down from one year to the next as a result of the Part B premium increase will not
apply to persons subject to an income-related increase in their Part B premiums.
Table 2. Percentage of Part B Costs Paid by
High-Income Beneficiaries
(in percent)
Modified AGI income category*
Year
Single
Couple
2007
2008
2009
$80,001-$100,000
$160,001-$200,000
28.30
31.7
35
$100,001-$150,000
$200,001-$300,000
33.25
41.75
50
$150,001-$200,000
$300,001-$400,000
38.20
51.8
65
more than $200,000
more than $400,000
43.15
61.85
80
* Beginning in 2008, the income levels are increased by the increase in the consumer price index for
urban consumers, rounded to the nearest $1,000.
At the time of enactment of the MMA provision, the Congressional Budget
Office (CBO) estimated that 1.2 million persons (3% of beneficiaries) would pay
higher premiums in 2007; and 2.8 million persons (6% of beneficiaries) would pay
higher premiums in 2013. CBO further estimated that the MMA provision would
reduce federal outlays by $13.3 billion over the 2007-2013 period. CBO estimated
that the DRA provision accelerating the phase-in would increase premium collections
by $1.6 billion over the 2007-2010 period.12
It should be noted that while some persons have labeled the premium change as
means testing, the same Part B benefits will be available to all enrollees regardless
of income.
Changes in 2010
MMA also required the Secretary to establish a six-year program, beginning in
2010, for the application of comparative cost adjustment (CCA) in CCA areas. The
CCA program will introduce competition between traditional fee-for-service (FFS)
Medicare and local private plans. As a result, an individual residing in a CCA area
who is enrolled in Part B of Medicare, but not enrolled in a managed care plan, can
have an adjustment to his or her Part B premium, either as an increase or a decrease.
No premium adjustment will be made for certain low-income persons. The annual
adjustment for a year, can not exceed 5% of the amount of the basic monthly Part B
premium, as otherwise determined.
12 The MMA estimate and the DRA estimate were each made by CBO at the time of
enactment of each law. Both estimates were based on the CBO budget baseline in effect at
the time. As is the case for all CBO estimates, the earlier estimates are incorporated into
subsequent CBO baselines. Therefore the two savings estimates cannot be added together.

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CRS-9
Part B Deductible
The Part B deductible was set at $100 for 1991-2004. MMA raised it to $110
in 2005. Beginning in 2006, it is increased by the same percentage used to update
the Part B premium. The 2006 deductible is $124.
Current Issues
Premium Amount
The size of recent premium increases has received considerable attention. As
noted, an individual’s Social Security check cannot go down from one year to the
next as a result of an increase in the Part B premium. However, some observers have
suggested that beneficiaries should not face the prospect of losing a large portion of
their cost-of-living (COLA) increase.13 Further, since the hold harmless provision
does not apply to the premiums for the new Part D drug program, some persons may
see a reduction.
The 2006 premium calculation was based on current law provisions, which
include a formula for calculating the annual update to the physician fee schedule. As
noted earlier, use of this formula would have resulted in a reduction in the fee
schedule rates for 2006. However, the DRA overrides the 2006 reduction. This has
the effect of increasing overall Part B costs, and by extension the Part B premium.
Since the 2006 premium amount had already been announced, the increase will first
be reflected in the 2007 premium. The preliminary estimate for the 2007 premium
is 11% over the 2006 amount.
The premium estimates for 2007 and subsequent years are based on current law
provisions, including the formula for calculating the annual payment update for
physicians services. Application of that formula is expected to result in a negative
update for a number of years. If Congress overrides the update for any year, as it has
done for 2003-2006, this will result in higher Part B premiums.
President’s Budget
As noted above, higher-income individuals will pay a higher premium
percentage beginning in 2007. The income threshold in 2007 is $80,000 for an
individual and $160,000 for a couple. In subsequent years, the income levels are
increased by the percentage increase in the consumer price index (CPI) for urban
consumers.
The President’s 2007 Budget would eliminate the annual CPI adjustments. This
would mean that each year the number of beneficiaries subject to the higher premium
13 See CRS Report RL33364, The Impact of Medicare Premiums on Social Security
Beneficiaries, by Kathleen Romig

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CRS-10
would increase. The President’s Budget estimated that this change would save $40
million over the FY2008 - FY2011 period. CBO estimated savings of $2 billion over
the same period and $15.1 billion over the FY2008-FY2016 period.
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