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Pr
epared for Members and Committees of Congress

Ž’ŒŠ›ŽDZȱŠ›ȱȱ›Ž–’ž–œȱ
ȱ
ž––Š›¢ȱ
Medicare beneficiaries have out-of-pocket cost-sharing requirements that differ according to the
services they receive. Physician and outpatient services provided under Part B are financed
through a combination of beneficiary premiums, deductibles, and federal general revenues. In
general, Part B beneficiary premiums equal 25% of estimated program costs for the aged, with
federal general revenues accounting for the remaining 75%.The disabled pay the same premium
as the aged. Beginning in 2007, higher-income enrollees paid a higher percentage of Part B costs.
The Centers for Medicare and Medicaid Services (CMS, the agency that administers Medicare)
estimated that approximately 4% of beneficiaries would pay a higher premium in 2007, and 5%
would pay a higher premium in 2008 and 2009.
The standard monthly Part B premium for 2009 will be $96.40, the same as the standard 2008
premium. Although costs in the Medicare Part B program are expected to grow between 2008 and
2009, the standard premium will remain the same because steps taken by CMS in recent years
have resulted in a contingency reserve in the Supplementary Medical Insurance (Part B) trust
fund that is “more than adequate.”
Higher-income beneficiaries subject to a premium adjustment will pay larger premiums. In 2009,
while the standard premium will be $96.40, beneficiaries in the four income-related premium
categories will pay premiums of $134.90, $192.70, $250.50, or $308.30 per month.
Beneficiaries who enroll in Part B after their initial enrollment period and/or reenroll after a
termination of coverage are subject to a “delayed enrollment penalty.” The delayed enrollment
penalty is equal to a 10% surcharge for each 12 months of delay in enrollment and/or
reenrollment. Under certain conditions, select beneficiaries are exempt from the delayed
enrollment penalty; these include working individuals (and their spouses) with group coverage,
some military retirees, and some international volunteers.
The basis for determining the Part B premium amount has changed several times since the
inception of the Medicare program, reflecting different views of what share beneficiaries should
bear as expenditures increased. When the Medicare program first went into effect in July 1966,
the Part B monthly premium was set at a level to cover 50% of Part B program costs. While there
have been many changes over the years, the Balanced Budget Act of 1997 (BBA 97, P.L. 105-33)
permanently set the premium at 25% of program costs so that, generally speaking, premiums rise
or fall with Part B program costs.
Current issues related to the Part B premium that may come before Congress include the recent
requirement that higher-income beneficiaries pay a larger income-related premium, the programs
that assist low-income beneficiaries with out-of-pocket Medicare costs including the Part B
premium, the amount of the premium and the rate of increase in recent years (by 2080,
projections by the Medicare trustees indicate that a medium earner will need 15% of his or her
Social Security benefits to pay the Part B premium), and modifications to the late enrollment
penalty. The report also discusses the comparative cost adjustment program, the Part B
deductible, and the Part A premium. This report will be updated as needed.

˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ

Ž’ŒŠ›ŽDZȱŠ›ȱȱ›Ž–’ž–œȱ
ȱ
˜—Ž—œȱ
Introduction ..................................................................................................................................... 1
Medicare Premiums .................................................................................................................. 1
Enrollment in Medicare Part B ................................................................................................. 2
Initial Enrollment Periods ................................................................................................... 2
General Enrollment Period ................................................................................................. 3
Collection of the Part B Premium ............................................................................................. 3
Determining the Part B Premium .................................................................................................... 3
Contingency Reserve ................................................................................................................ 3
Premium Calculation for 2009 .................................................................................................. 4
Enrollment Penalty and Exceptions .......................................................................................... 4
History of the Part B Premium ........................................................................................................ 6
Statutory Evolution of the Premium.......................................................................................... 6
Part B Premium Amount over Time.......................................................................................... 7
Current Issues .................................................................................................................................. 9
Income-Related Premium.......................................................................................................... 9
Assistance for Low Income Beneficiaries............................................................................... 14
Qualified Medicare Beneficiaries (QMBs) ....................................................................... 14
Specified Low-Income Medicare Beneficiaries (SLIMBs) .............................................. 14
Qualifying Individuals (QI-1) ........................................................................................... 15
Premium Amount and Annual Increases ................................................................................. 15
Late Enrollment Penalty.......................................................................................................... 16
Comparative Cost Adjustment Program.................................................................................. 17
Related Issues.......................................................................................................................... 17
Part B Deductible.............................................................................................................. 17
Part A Premium ................................................................................................................. 18

’ž›Žœȱ
Figure 1. Monthly Medicare Part B Premiums................................................................................ 8
Figure 2. Percentage of Costs Paid by Beneficiaries with Income-Related Premiums ..................11
Figure 3. Part B Premiums by Beneficiary Income Category ....................................................... 12
Figure 4. Annual Part B Deductible and Premium Amounts......................................................... 18

Š‹•Žœȱ
Table 1. Income Levels for Determining Medicare Part B Premium Adjustment......................... 10
Table 2. Income Levels for Determining Part B Premium Adjustment for Married
Beneficiaries Filing Separately .................................................................................................. 12
Table A-1. Monthly Part B Premiums, 1966-2009 ........................................................................ 20

˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ

Ž’ŒŠ›ŽDZȱŠ›ȱȱ›Ž–’ž–œȱ
ȱ
™™Ž—’¡Žœȱ
Appendix. History of the Part B Premium Governing Policy and Legislative Authority ............. 20

˜—ŠŒœȱ
Author Contact Information .......................................................................................................... 21
Acknowledgments ......................................................................................................................... 22

˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ

Ž’ŒŠ›ŽDZȱŠ›ȱȱ›Ž–’ž–œȱ
ȱ
—›˜žŒ’˜—ȱ
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
outpatient prescription drug benefit added by the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 [MMA]).
Ž’ŒŠ›Žȱ›Ž–’ž–œȱ
Medicare beneficiaries have out-of-pocket cost-sharing requirements that differ according to the
services they receive. Medicare Part A does not require a beneficiary premium (except in rare
occasions1) as Part A is primarily financed through payroll taxes, although beneficiaries still have
deductibles and copayments for these services. In contrast, physician and outpatient services
provided under Part B as well as outpatient prescription drug benefits under Part D are financed
through a combination of beneficiary premiums, deductibles, and federal general revenues.
Medicare beneficiaries who enroll in a Part C managed care plan (MA) receive both Part A and
Part B benefits through the managed care plan, which may charge beneficiaries a premium.
Beneficiaries who enroll in a Medicare Advantage plan that also offers the prescription drug
benefit (MA-PD) might pay a combined premium for all their Part B and Part D benefits.
In general, Part B beneficiary premiums equal 25% of estimated program costs for the aged, with
federal general revenues accounting for the remaining 75%. The disabled pay the same premium
as the aged. Beginning in 2007, higher-income enrollees paid a higher percentage of Part B costs.
The Centers for Medicare and Medicaid Services (CMS, the agency that administers Medicare)
estimated that approximately 4% of beneficiaries would pay a higher premium in 2007, and 5%
would pay a higher premium in 2008 and 2009.2
The standard monthly Part B premium for 2009 will be $96.40, the same as the 2008 premium.3
Although costs in the Medicare Part B program are expected to grow between 2008 and 2009, the
standard premium will remain the same because steps taken by CMS in recent years have resulted
in a contingency reserve in the Supplementary Medical Insurance (Part B) trust fund that is “more
than adequate.”4 However, the 2009 premiums for Medicare beneficiaries who fall in the higher
income categories and are subject to the income-related premium calculation will increase over

1 Approximately 99% of Medicare beneficiaries have (or are the spouse of widower of someone who had) at least 40
quarters of Medicare-covered employment and have contributed payroll taxes and as a result do not pay a premium for
Part A services. Part A services are still available for beneficiaries who do not meet this condition but they must pay a
Part A premium. The voluntary Part A premium is equal to the actuarial value of the Part A benefit, however, persons
who have at least 30 quarters of covered employment have a reduced Part A premium. Persons who voluntarily
purchase Part A must also purchase Part B.
2 CMS, “Medicare Premiums and Deductibles for 2007,” Fact Sheet, September 12, 2006, “CMS Announces Medicare,
Premiums, Deductibles for 2008,” Fact Sheet, October 1, 2007, and “CMS Announces Medicare Premiums,
Deductibles for 2009,” Fact Sheet, September 19, 2008.
3 Centers for Medicare and Medicaid Services, “Medicare Program: Medicare Part B Monthly Actuarial Rates,
Premium Rate, and Annual Deductible Beginning January 1, 2009,” 73, No. 186 Federal Register 55089-11096,
September 24, 2008.
4 See CMS Fact Sheet, September 19, 2008 and the discussion of contingency reserve below for details.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŗȱ

Ž’ŒŠ›ŽDZȱŠ›ȱȱ›Ž–’ž–œȱ
ȱ
the 2008 premium amounts largely because 2009 is the last year of a three-year phase-in period
that requires these beneficiaries to bear a greater percentage of the average cost of the Part B
program.
Individuals receiving Social Security benefits have their Part B premium payments automatically
deducted from their Social Security benefit checks. In general, their Social Security checks
cannot go down from one year to the next as a result of the annual Part B premium increase.5
However, this protection does not apply to higher-income persons subject to higher income-
related premiums. Social Security payments are subject to an annual cost-of-living adjustment, or
COLA; the 2009 COLA increase will be 5.8%.6
—›˜••–Ž—ȱ’—ȱŽ’ŒŠ›ŽȱŠ›ȱȱ
Generally, elderly or disabled individuals are able to qualify for Medicare. An individual (or
spouse of an individual) who has worked in covered employment and paid Medicare payroll taxes
is entitled to Medicare Part A benefits upon turning 65. Persons who have applied for Social
Security or railroad retirement benefits automatically receive a Medicare card when they turn 65.
Persons who have not applied for Social Security or railroad retirement benefits must file an
application for Medicare benefits. An individual who becomes entitled to Medicare Part A is
automatically enrolled in Part B unless he or she specifically refuses this coverage, however, an
aged person not entitled to Part A may still enroll in Part B.7 Disabled persons who have received
cash payments for 24 months under the Social Security or railroad retirement disability programs
automatically receive a Medicare card and are automatically enrolled in Part B unless they
specifically decline such coverage.
—’’Š•ȱ—›˜••–Ž—ȱŽ›’˜œȱ
Some persons are required to file an application for Medicare benefits. These include persons
who have not applied for Social Security or railroad retirement benefits because they are still
working, and certain federal, state and local government workers who are not entitled to cash
benefits under these programs, but who are still entitled to Medicare benefits. Further, aged
persons not entitled to Part A must file an application if they wish to obtain Part B coverage. 8

5 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.
6 Social Security Administration, “Social Security Announces 5.8 Percent Benefit Increase for 2009,” press release,
October 16, 2008, http://www.ssa.gov/pressoffice/pr/2009cola-pr.htm.
7 An aged person not entitled to Part A may enroll in Part B if he or she is a resident of the United States. Further, the
individual must either be a citizen or an alien lawfully admitted for permanent residence who has resided in the United
States continuously for the immediately preceding five years.
8 Since 1965, some changes have been made to the Part B enrollment provisions. The Social Security Amendments of
1972 (P.L. 92-603) removed the prior three-year limit for initial enrollment and reenrollment after an initial
termination. Also in 1972, enrollment in Part B was made automatic for those entitled to Part A. Since most persons
voluntarily enroll in Part B, there was now less likelihood that a person might inadvertently not obtain Part B
protection; these persons still retained their right to reject Part B coverage. The Omnibus Budget Reconciliation Act of
1980 (P.L. 96-499) provided for continuous open enrollment; further, the provision preventing reenrollment more than
twice was removed. The Omnibus Budget Reconciliation Act of 1981 (P.L. 97-35) repealed the 1980 continuous open
enrollment provision; the provision permitting unlimited reenrollment was retained. Other conforming changes have
also been made over the period, reflecting such things as the coverage of the disabled population and the addition of
(continued...)
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
Řȱ

Ž’ŒŠ›ŽDZȱŠ›ȱȱ›Ž–’ž–œȱ
ȱ
A person’s initial enrollment period is seven months long and begins three months before the
month in which the individual first meets the eligibility requirements. Beneficiaries who do not
file an application for Medicare benefits during their initial enrollment period could be subject to
the Part B delayed enrollment penalty (see enrollment penalties discussion below).
Ž—Ž›Š•ȱ—›˜••–Ž—ȱŽ›’˜ȱ
An individual who does not establish eligibility during the initial enrollment period must wait
until the next general enrollment period. In addition, persons who specifically decline Part B
coverage, or terminate Part B coverage, must also wait until the next general enrollment period to
enroll or re-enroll. The general enrollment period lasts for three months from January 1 to March
31 of each year, with coverage beginning on July 1 of that year. A delayed enrollment penalty
may apply.
˜••ŽŒ’˜—ȱ˜ȱ‘ŽȱŠ›ȱȱ›Ž–’ž–ȱ
When possible, the Medicare Part B premium is deducted from the monthly benefit, annuity, or
pension check of Social Security or railroad retirement beneficiaries and civil service annuitants,
except for those beneficiaries enrolled as state public assistance recipients. Beneficiaries who are
not entitled to a monthly cash benefit from Social Security, a railroad retirement annuity or
pension or a federal civil service annuity must pay the Part B premium directly to CMS.9
Nonpayment of premiums results in termination of enrollment in the Part B program, although a
grace period (through the last day of the third month following the month of the due date) is
allowed for beneficiaries who are billed and pay directly.
ŽŽ›–’—’—ȱ‘ŽȱŠ›ȱȱ›Ž–’ž–ȱ
Each year, Medicare actuaries estimate total per capita incurred Part B costs for beneficiaries
aged 65 and older over the following year and set the Part B premium to cover 25% of
expenditures. However, because prospective estimates may differ from the actual spending for the
year, program income for the year may not equal projected program costs. Since the trust fund
assets must be maintained at a level to cover a moderate degree of variation between actual and
projected costs, this flexibility is achieved through a contingency reserve adjustment.
˜—’—Ž—Œ¢ȱŽœŽ›ŸŽȱ
The contingency reserve is the amount set aside to cover an appropriate degree of variation
between actual and projected costs. In recent years, CMS has noted that Part B expenditures were
higher than expected.10 In some cases, legislation that has the effect of increasing expenditures for
the year has been enacted after the premium for the year has been set. For example, with

(...continued)
special enrollment periods for persons with group health plans.
9 42 C.F.R. § 408.60. Premiums For Supplementary Medical Insurance: Subpart D—Direct Remittance: Individual
Payment.
10 CMS Fact Sheet, September 19, 2008.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
řȱ

Ž’ŒŠ›ŽDZȱŠ›ȱȱ›Ž–’ž–œȱ
ȱ
physician payments, current law specifies a formula, called the sustainable growth rate system
(SGR), for calculating the annual update to the conversion factor used to determine payments
under the physician fee schedule. The SGR formula has called for a reduction in the update factor
(i.e., lower reimbursement rates) for each year since 2003. However, Congress has overridden the
payment cut each year and passed legislation that has either frozen or slightly increased the
reimbursement rates. These actions have often led to discrepancies between the actual and
projected Part B costs.
In calculating the premium for 2008, CMS recognized the possibility that Congress would
override the reduction for 2008 (thereby significantly increasing Part B expenses), and provided
for the maintenance of a somewhat higher contingency reserve than would otherwise be
necessary in calculating the 2008 premium. Because of this action, the contingency reserve was
sufficiently large that the 2009 premiums did not have to increase, despite increases in overall
Part B expenditures.11
›Ž–’ž–ȱŠ•Œž•Š’˜—ȱ˜›ȱŘŖŖşȱ
The monthly Part B premium amount is calculated by estimating the total cost of covered Part B
services, removing required beneficiary cost sharing contributions (deductibles and coinsurance),
adjusting for administrative expenses and interest, and setting a contingency reserve margin.12 For
2009, the total monthly benefit costs of $463.92 were reduced by $73.36 for required beneficiary
cost-sharing ($11.00 for the deductible and $62.36 for coinsurance). The resulting amount of
$390.56 was increased by $6.40 for administrative expenses and reduced by $5.26 for interest
earnings. An additional amount of $6.28 was removed for the contingency margin adjustment.
Twenty-five percent of the resulting net per capita amount yields a 2009 standard premium
amount (when rounded to the nearest $0.10) of $96.40.13
Although the standard premium amount in 2009 is the same as the amount for 2008, the
calculations had different underlying figures. The estimated total monthly benefit costs,
beneficiary cost sharing, administrative expenses and interest earnings were all lower in
calculating the 2008 premium than in the calculation for 2009. However, an amount equal to
$23.70 was added to increase the reserves for the contingency margin adjustment in 2008.14 This
cushion allowed CMS to keep premiums from increasing in 2009.
—›˜••–Ž—ȱŽ—Š•¢ȱŠ—ȱ¡ŒŽ™’˜—œȱ
Beneficiaries who enroll in Part B after their initial enrollment period and/or reenroll after a
termination of coverage are subject to a “delayed enrollment penalty.” The penalty provision was
included in the original Medicare legislation enacted in 1965 to help prevent adverse selection on

11 CMS, Federal Register, September 24, 2008, op. cit.
12 The actual calculation presented in the regulation shows the numbers for the “monthly actuarial rate” which equals
50% of costs.
13 See CMS Federal Register, September 24, 2008, op. cit., pp. 55092-4.
14 Centers for Medicare and Medicaid Services, “Medicare Program: Medicare Part B Monthly Actuarial Rates,
Premium Rates, and Annual Deductible Beginning January 1, 2008,” 72, No. 193 Federal Register 57039, October 5,
2007.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
Śȱ

Ž’ŒŠ›ŽDZȱŠ›ȱȱ›Ž–’ž–œȱ
ȱ
the part of beneficiaries.15 The late enrollment penalty was put in place to create a strong
incentive for all eligible beneficiaries to enroll in Part B. With most persons over 65 enrolled in
Part B, the costs are spread over the majority of this population and per capita costs are less than
would be the case if adverse selection had occurred.
The delayed enrollment penalty is equal to a 10% surcharge for each 12 months of delay in
enrollment and/or reenrollment. Thus, the length of the period equals: (1) the number of months
that elapse between the end of the initial enrollment period and the end of the enrollment period
in which the individual actually enrolls; or (2) for a person who re-enrolls, the months that elapse
between the termination of coverage and the close of the enrollment period in which the
individual enrolls. For example, if an individual’s first enrollment period ended in September
2005 and the individual subsequently enrolled during the 2008 general enrollment period, the
surcharge would be 20%. (Although the elapsed time covers a total of 30 months of delayed
enrollment, the episode includes only two full 12-month periods.) There is no upper limit on the
amount of the surcharge that may apply, and the penalty continues to apply for the entire time the
individual is enrolled in Part B.
Under certain conditions, select beneficiaries are exempt from the delayed enrollment penalty.
Beneficiaries who are exempt include working individuals (and their spouses) with group
coverage, some military retirees, and some international volunteers.
A working individual and/or the spouse of a working individual may be able to delay enrollment
in Medicare Part B without being subject to the delayed enrollment penalty. Delayed enrollment
is permitted when an individual 65 or over has group health insurance coverage based on the
individual’s or spouse’s current employment (with an employer with 20 or more employees).
Delayed enrollment is also permitted for certain disabled persons who have group health
insurance coverage based on their own or a family member’s current employment with a large
group health plan. A large group health plan is one which covers 100 or more employees.16 17

15 Adverse selection occurs when beneficiaries, who generally have more information than insurers about their own
health status and expected health care needs, make insurance purchasing decisions based on their expected use of the
insurance benefit. Their decision to purchase insurance is based on a comparison of the value of the insurance
coverage, given their expected use, and the cost of the insurance. Should only (or disproportionately) persons who turn
out to be high health care users enroll in the program, per capita costs would increase thereby making the health
insurance purchase decision less attractive for healthier, and presumably less costly, beneficiaries who then might drop
out of the program. Subsequent iterations of this cycle would drive premium costs higher and higher for a smaller and
smaller subset of ever sicker and costlier beneficiaries.
16 Persons permitted to delay coverage without penalty are those persons whose Medicare benefits are determined
under the Medicare secondary payer (MSP) program. Under MSP, an employer (with 20 or more employees) is
required to offer workers aged 65 and over (and workers spouses aged 65 and over) the same group health insurance
coverage as is made available to other employees. The worker has the option of accepting or rejecting the employer’s
coverage. If he or she accepts the coverage, the employer plan is primary (i.e., pays benefits first) for the worker and/or
spouse over age 65. Medicare becomes the secondary payer (i.e., fills in the gaps in the employer plan, up to the limits
of Medicare’s coverage). Similarly, a group health plan offered by an employer with 100 or more employees is the
primary payer for employees or their dependents who are on the Medicare disability program.
17 The Balanced Budget Act of 1997 (BBA, P.L. 105-33) added an additional exception to the penalty. This exception
is for disabled persons who: (a) at the time they first become eligible for Part B are enrolled in a group health plan
(regardless of size) by virtue of their current or former employment, and (b) whose continuous enrollment under the
plan is involuntarily terminated at a time when their enrollment in the plan is by virtue of their or their spouse’s former
(i.e., not current) employment. These individuals have a special six-month enrollment period beginning on the first day
of the month in which the termination occurs. Individuals who fail to enroll during this period would be considered to
have delayed enrollment.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
śȱ

Ž’ŒŠ›ŽDZȱŠ›ȱȱ›Ž–’ž–œȱ
ȱ
Individuals who are permitted to delay enrollment have their own special enrollment periods. A
special enrollment period begins when current employment (or coverage under the employer-
sponsored plan) ends and lasts for eight months. Individuals who fail to enroll in this period are
considered to have delayed enrollment and then could become subject to the penalty.
Some military retirees may also be exempt from the late enrollment penalty. Health care coverage
for military retirees was expanded by the Floyd D. Spence National Defense Authorization Act
for FY2001 (P.L. 106-398), which authorized a permanent comprehensive health care benefit for
Medicare-eligible retirees who are enrolled in Part B. These military retirees were made eligible
for health care within TRICARE, the military health care system, effective October 1, 2001.
TRICARE for Life serves as a second payer to Medicare, paying cost sharing amounts for
services covered under Medicare. Eligibility for TRICARE for Life is contingent on enrollment in
Part B and, once enrolled, beneficiaries are eligible for any TRICARE for Life benefits not
covered by Medicare. Section 625 of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (MMA, P.L. 108-173) waived the Part B enrollment penalty for
military retirees, age 65 and over, who enrolled in the TRICARE for Life program from 2001-
2004. A special enrollment period applied for these persons, which ended December 31, 2004.
The waiver applied to premiums for months beginning January 1, 2004.18
International volunteers may also be exempt from the Part B late enrollment penalty. The Deficit
Reduction Act of 2005 (P.L. 109-171) permits certain individuals to delay enrollment in Part B
without a delayed enrollment penalty if they volunteered outside of the United States for at least
12 months through a program sponsored by a tax-exempt organization defined under Section
501(c)(3) of the Internal Revenue Code. The individuals must demonstrate they had health
insurance coverage while serving in the international program. Individuals permitted to delay
enrollment have a six-month special enrollment period, which begins on the first day of the first
month they no longer qualify under this provision.
Approximately 5% of Medicare enrollees are subject to higher premiums based on their higher
incomes (see discussion of income-related premiums below). However, the delayed enrollment
surcharge applies only to the standard monthly premium amount and not to the total income-
related premium amount including the higher income adjustment.
’œ˜›¢ȱ˜ȱ‘ŽȱŠ›ȱȱ›Ž–’ž–ȱ
Šž˜›¢ȱŸ˜•ž’˜—ȱ˜ȱ‘Žȱ›Ž–’ž–ȱ
The basis for determining the Part B premium amount has changed several times since the
inception of the Medicare program, reflecting different views of what share beneficiaries should
bear as expenditures increased. When the Medicare program first went into effect in July 1966,
the Part B monthly premium was set at a level to cover 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 the cost-of-living (i.e., COLAs).
Under this formula, revenues from premiums soon dropped from 50% to below 25% of program

18 The Secretary of the Health and Human Services was required to rebate any penalties paid for months on or after
January 2004, which were no longer applicable as a result of this provision.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
Ŝȱ

Ž’ŒŠ›ŽDZȱŠ›ȱȱ›Ž–’ž–œȱ
ȱ
costs 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. (See Appendix for year-by-
year details.)
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, with general revenues covering the remaining 75% of Part B program
costs. Premiums increased in 1989 as a result of the Medicare Catastrophic Coverage Act of 1988
(P.L. 100-360), which added a catastrophic coverage premium to the Part B premium. The Act
was repealed in November 1989 and the Part B premium for 1990 fell as a result. (See Figure 1.)
Congress returned to the general approach of having premiums cover 25% of program costs in the
Omnibus Budget Reconciliation Act of 1990 (OBRA 90, P.L. 101-508). However, OBRA 90 set
specific dollar figures, rather than a percentage, in law for Part B premiums for the years 1991-
1995. These dollar figures reflected Congressional Budget Office (CBO) estimates of what 25%
of program costs would be over the five-year period. However, program costs grew more slowly
than anticipated, in part due to subsequent legislative changes and as a result, the 1995 premium
of $46.10 actually represented 31.5% of Medicare Part B program costs.
The Omnibus Budget Reconciliation Act of 1993 (OBRA 93, P.L. 103-66) extended the policy of
setting the Part B premium at a level to cover 25% of program costs for the years 1996-1998. As
was the case prior to 1991, a percentage rather than a fixed dollar figure was used, which 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 so that,
generally speaking, premiums rise or fall with Part B program costs.19
Š›ȱȱ›Ž–’ž–ȱ–˜ž—ȱ˜ŸŽ›ȱ’–Žȱ
The Part B premium has increased over the years along with total Part B expenditures as the two
are linked, although the precise relationship has changed with modifications to the statute. There
are instances when the premium has declined or has not changed from year to year, and many of
the policies discussed above were in response to the impact of Part B program expenditure
increases on beneficiary premiums.
In nominal dollar terms (not adjusted for inflation), the Part B premium has risen from $3.00 in
1966 to $96.40 for 2009 (see Figure 1). Over that period, the premium has decreased from year
to year twice: once from 1989 ($31.90) to 1990 ($28.60) as a result of the repeal of the
Catastrophic Coverage Act, as mentioned above, and once from 1995 ($46.10) to 1996 ($42.50)
as a result of the transition from a premium as determined by a fixed dollar amount under OBRA
90 to 25% of costs as directed under OBRA 93. The premium has more than doubled in recent
years, increasing from $45.50 in 2000 to $96.40 in 2008 and 2009.

19 BBA 97 made a change that 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.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŝȱ

Ž’ŒŠ›ŽDZȱŠ›ȱȱ›Ž–’ž–œȱ
ȱ
Figure 1. Monthly Medicare Part B Premiums
Nominal and CPI-adjusted dollars, 1966-2009
$120.00
Transition from fixed dollar am ount under
OBRA 90 (1991-1995) to 25% of costs
under OBRA 93 and BBA 97 (1996 on).
$100.00
$80.00
$4 catastrophic coverage prem ium added
m
by Catastrophic Coverage Act of 1988,
iu
m

repealed the next year.
re
$60.00
P
y

nthl
o
M

$40.00
$20.00
Nom inal dollars
CPI-adjusted dollars
$0.00
r
a
67
69
71
73
75
77
79
81
83
85
87
89
91
93
95
97
99
01
03
05
07
Ye
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
20
20
20
20

Source: CRS figure, based on the 2008 Annual Report of the Boards of Trustees of the Federal
Hospital Insurance and Federal Supplemental Medical Insurance Trust Funds, Table V.C2. – SMI Cost
Sharing and Premium Amounts, and U.S. Department Of Labor, Bureau of Labor Statistics, “History of CPI-U
U.S. All Items Indexes and Annual Percent Changes From 1913 to Present,”
ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt.
Notes: See Appendix for yearly details.
Because prices have increased every year since the inception of the Medicare program (as
measured by the consumer price index, or CPI),20 inflation-adjusted premiums show an even
more pronounced increase over time. The original premium in 1966, adjusted for inflation, would
be $0.45 in 2008 dollars. (See Figure 1.)
The proportion of the Social Security benefit required to pay for the Part B premium depends on
the earnings history of the beneficiary (and thus the amount of the Social Security benefit),
however, this share has been growing in recent years. A Social Security (and Medicare)
beneficiary who earned the average wage throughout his or her career (called a medium earner)

20 See U.S. Department of Labor, Bureau of Labor Statistics table, “History of CPI-U U.S. All Items Indexes and
Annual Percent Changes From 1913 to Present,” ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
Şȱ

Ž’ŒŠ›ŽDZȱŠ›ȱȱ›Ž–’ž–œȱ
ȱ
would have needed about 5% of the retiree’s benefits in 1999 and about 8% in 2008 to pay the
standard Part B premium. By 2080, projections by the Medicare trustees indicate that a medium
earner will need 15% of his or her Social Security benefits to pay the Part B premium.21
The premium increase in recent years is attributable to a number of factors that have increased
Part B expenditures. CMS cites the growth in a number of service categories, including home
health, physician-administered drugs, ambulatory surgical centers, durable medical equipment,
independent labs, and physician office labs, as well as the growth in the Medicare Advantage
(MA) program.22 Increases attributed to the MA program reflect the increase in the average risk
of enrolled beneficiaries (which increases average per capita payments), as well as the impact of
fee-for-service cost growth on MA county benchmarks.
ž››Ž—ȱ œœžŽœȱ
Current issues related to the Part B premium that may come before the Congress include the
recent requirement that higher-income beneficiaries pay a larger income-related premium, the
programs that assist low-income beneficiaries with out-of-pocket Medicare costs including the
Part B premium, the amount of the premium and the rate of increase in recent years (and the
potential impact on net Social Security benefits), and modifications to the late enrollment penalty.
—Œ˜–ŽȬŽ•ŠŽȱ›Ž–’ž–ȱ
For the first forty-one years of the Medicare program, all Part B enrollees paid the same Part B
premium, regardless of their income. Over time, a number of proposals have been offered that
would increase the share of Part B costs borne by higher-income individuals. Some observers
suggested that it might be inappropriate for taxpayers to pay (through general revenue financing)
three-quarters of Part B costs for these persons, as this could result in low income and middle
income working persons subsidizing higher-income elderly persons. However, others have argued
that relating premiums to income would relieve some of the financial pressure on the program
even though the transition might represent a first step in moving away from the entitlement nature
of the Medicare program. Further, some individuals have suggested that higher-income enrollees
might be tempted to drop Medicare Part B coverage as a result of the higher premium although,
as a practical matter, the number of beneficiaries who have this as an option might be few as there
are few alternatives available for the Medicare-eligible population in the private insurance
market.23
The Medicare Modernization Act of 2003 (MMA) increased the Part B premium percentage for
high-income enrollees beginning in 2007. The MMA would have phased in the increase over five
years, however, the Deficit Reduction Act of 2005 (DRA) shortened the phase-in period to three
years. At the time of enactment of the MMA, the Congressional Budget Office (CBO) estimated

21 See CRS Report RL33364, The Impact of Medicare Premiums on Social Security Beneficiaries, by Kathleen Romig
for details.
22 Payments to Medicare Advantage plans are made in appropriate part from the Medicare Part A Hospital Insurance
Trust Fund and from the Medicare Part B Supplementary Insurance Trust Fund.
23 Medicare beneficiaries who have coverage through a group plan offered by their spouse’s employer might also be
able to consider dropping Part B, however, this is a small subset of the Medicare Part B population.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
şȱ

Ž’ŒŠ›ŽDZȱŠ›ȱȱ›Ž–’ž–œȱ
ȱ
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.24
In announcing the premium levels for 2007 through 2009, the Centers for Medicare and Medicaid
Services (CMS) estimated that 4% of enrollees would be subject to the higher premium amounts
in 2007 and 5% in 2008 and 2009. While some have intimated that an income-related premium
incrementally moves Medicare away from an entitlement program and gives Medicare a
characteristic of a means tested program, the same Part B benefits are available to all enrollees,
regardless of income.
The Part B premiums for high-income beneficiaries are based on a greater beneficiary share of
total expenditures that increases with income. Beginning in 2007, individuals whose modified
adjusted gross income (AGI) exceeded $80,000, and couples whose modified AGI exceeded
$160,000, were subject to higher premium amounts. When both members of a couple are enrolled
in Part B, each pays the applicable premium amount.
The income level categories are indexed to change with the consumer price index for urban
consumers (CPI-U), rounded to the nearest $1,000. Thus, the 2008 income levels for the lowest of
the four higher-income categories were $82,000 -$102,000 for an individual and $164,000 -
$204,000 for a couple. CMS estimates that approximately 4% of Part B enrollees paid a premium
greater than the standard amount in 2007, with less than 1% of beneficiaries falling in the highest
premium category. Income levels for all categories and years from 2007-2009 are shown in Table
1
.
Table 1. Income Levels for Determining Medicare Part B Premium Adjustment
2007-2009 (in nominal dollars $)
Income Level
2007
2008
2009
Standard
Less than 80,000 individual Less than 82,000 individual Less than 85,000 individual
Less than 160,000 couple
Less than 164,000 couple
Less than 170,000 couple
Lowest (first) Category
80,000-100,000 individual
82,000-102,000 individual
85,000-107,000 individual
160,000-200,000 couple
164,000-204,000 couple
170,000-214,000 couple
Second lowest Category 100,001-150,000 individual 102,001-153,000 individual 107,000-160,000 individual
200,001-300,000 couple
204,001-306,000 couple
214,000-320,000 couple
Third lowest Category
150,001-200,000 individual 153,001-205,000 individual 160,001-213,000 individual
300,001-400,000 couple
306,001-410,000 couple
320,000-426,000 couple
Highest Category
200,001+ individual
205,000+ individual
213,000+ individual
400,000+ couple
410,000+ couple
426,000+ couple

24 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.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŗŖȱ

Ž’ŒŠ›ŽDZȱŠ›ȱȱ›Ž–’ž–œȱ
ȱ
Source: Centers for Medicare and Medicaid Services, “Medicare Program: Medicare Part B Monthly Actuarial
Rates, Premium Rate, and Annual Deductible Beginning January 1, 2009,” 73, No. 286 Federal Register 55089-
55096, September 24, 2008.
In 2009, the income-related premiums are to be fully phased in with higher-income individuals
paying total premiums ranging from 35% to 80% of the value of Part B. See Figure 3 for the
percentages by income category as phased in over the three years, 2007-2009.
Figure 2. Percentage of Costs Paid by Beneficiaries with Income-Related Premiums
2006-2009
90.0

d
e
at
el

80.0
80.0
-R
e
m
o

70.0
c
n
I

65.0
ith
61.7
60.0
s W
rie
a

51.7
s 50.0
50.0
fici
m
e
n

iu
43.3
e
m
41.7
e 40.0
B
y

Pr
38.3
b
35.0
33.3
id
31.7
a
30.0
28.3
ts P
25.0
25.
25 0
.
25.0
25.0
25.0
s
o

20.0
f C
o
e
g

10.0
ta
n
e
rc
e
P

0.0
2006
2007
2008
2009
Standard
Low est (first) Income-Related Premium Category
Second low est category
Third low est category
Highest category

Source: CRS figure based on data from CMS.
As a result of the income-related adjustment and the phase-in of the increased share of program
costs paid by higher income beneficiaries, the variation in premiums increases from no difference
in 2006 to a three-fold difference between the standard premium and the premium paid by
beneficiaries in the highest premium-adjustment income category in 2009. In 2006, the year
before the income-related adjustment, all premiums were $88.50. In 2009, premiums will range
from $96.40 for the standard premium to $308.30 for beneficiaries in the highest income-related
premium category. (See Figure 3.)
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŗŗȱ

Ž’ŒŠ›ŽDZȱŠ›ȱȱ›Ž–’ž–œȱ
ȱ
Figure 3. Part B Premiums by Beneficiary Income Category
2006-2009
350.00
308.30
300.00
250.50
)
238.40
250.00
's
$
(
m

199.70
iu
192.70
200.00
m
Pre
161.40
160.90
B
rt

142.90
150.00
134.90
Pa
124.40
122.20
ly
th

105.80
n
o

88.50
93.50
96.40
96.40
88.50
88.50
88.50
88.50
100.00
M
50.00
0.00
2006
2007
2008
2009
Standard
Low est (first) Income-Related Premium Category
Second low est category
Third low est category
Highest category

Source: CRS figure based on CMS data.
Notes: Numbers above the bars are the premium amounts for that year for that beneficiary income category,
Married persons who lived with their spouse at some point during the year but who filed separate
returns are subject to different premium amounts. There are two higher income categories that
determine the additional monthly premium adjustment for these beneficiaries. The income levels
and premium amounts are show in Table 2.
Table 2. Income Levels for Determining Part B Premium Adjustment for Married
Beneficiaries Filing Separately
2007-2009
Income Level
2007
2008
2009
Standard $93.50
$96.40
$96.40
Lower adjustment
category
143.40 199.70 250.50
Higher adjustment
category
162.10 238.40 308.30
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŗŘȱ

Ž’ŒŠ›ŽDZȱŠ›ȱȱ›Ž–’ž–œȱ
ȱ
Source: Centers for Medicare and Medicaid Services, “Medicare Program: Medicare Part B Monthly Actuarial
Rates, Premium Rate, and Annual Deductible Beginning January 1, 2009,” 73, No. 286 Federal Register 55089-
55096, September 24, 2008.
Notes: The actual income levels are indexed and increase year to year. Thus, the thresholds were (i) less than
$80,000/$82,000/$85,000 for 2007/2008/2009 respectively for beneficiaries who had no additional adjustment
and paid the standard premium (second row of the table); (ii) from $80,000 to $120,000/$82,000 to
$123,000/$85,000 to $128,000 for 2007/2008/2009 (third row of the table); and, (iii) greater than
$120,000/greater than $123,000/greater than $128,000 for 2007/2008/2009 (fourth row of the table).
The term “modified AGI” means adjusted gross income as defined under the Internal Revenue
Code plus the following:
• tax-exempt interest income;
• income from U.S. savings bonds used to pay higher education tuition and fees;
• foreign-earned income;
• income derived from sources within Guam, American Samoa, or the Northern
Mariana Islands; and
• income from sources within Puerto Rico.25
In general, the taxable year used in determining the premium is the second calendar year
preceding the relevant year. For example, 2007 income is used to calculate the 2009 premium
amount. If a person had a one-time increase in income in a particular year (such as from the sale
of income producing property), that increase will be considered in determining the individual’s
total income for that year and liability for the income-related premium two years ahead, when the
premium calculation is based on the year in question. It will not be considered in the calculations
for future years.
In the case of certain major life-changing events that result in a significant reduction in modified
AGI, an individual may request to have the determination made for a more recent year than the
second preceding year. Major life-changing events are defined as:
• death of a spouse;
• marriage;
• divorce or annulment;
• partial or full work stoppage for the individual or spouse;
• loss by individual or spouse of income from income-producing property when
the loss is not at the individual’s direction (such as in the case of a natural
disaster);
• reduction or loss for individual or spouse of pension income due to termination
or reorganization of the plan or scheduled cessation of the pension.26

25 Social Security Administration, Medicare Part B Income-Related Monthly Adjustment Amount, vol.71n no.208,
October 27, 2006, 62923.
26 Ibid., 62937.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŗřȱ

Ž’ŒŠ›ŽDZȱŠ›ȱȱ›Ž–’ž–œȱ
ȱ
The current law provision that prevents a beneficiary’s check from decreasing from one year to
the next as a result of the Part B premium increase does not apply to persons subject to an
income-related increase in their Part B premiums.
Some proposals have sought to modify the calculation of the income levels. Currently, the income
levels are indexed to changes in the consumer price index (CPI) for urban consumers. President
George W. Bush proposed eliminating the annual CPI adjustments in his proposed 2008 budget.27
Such a modification would result in more beneficiaries being subject to the higher premium each
year as incomes increased (in part due to inflation) while the thresholds remained stagnant. While
this change in policy would yield cost savings to the government because more and more
beneficiaries would pay higher premiums, it could lead to problems in the future when future
average and lower income levels (which will be subject to inflation) approach the nominal and
unchanging “higher income” thresholds of today.28
œœ’œŠ—ŒŽȱ˜›ȱ˜ ȱ —Œ˜–ŽȱŽ—Ž’Œ’Š›’Žœȱ
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:
žŠ•’’ŽȱŽ’ŒŠ›ŽȱŽ—Ž’Œ’Š›’ŽœȱǻœǼȱ
QMBs are aged or disabled persons with incomes at or below the federal poverty level. In 2008,
the monthly federal poverty level is $867 for an individual and $1,167 for a couple29 and assets
below $4,000 for an individual and $6,000 for a couple and the QMB monthly qualifying levels
are $887 and $1,187 respectively.30 The monthly 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.
™ŽŒ’’Žȱ˜ Ȭ —Œ˜–ŽȱŽ’ŒŠ›ŽȱŽ—Ž’Œ’Š›’Žœȱǻ œǼȱ
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 2008, the monthly income limits are
$1,060 for an individual and $1,420 for a couple.31 Medicaid protection is limited to payment of

27 President Bush also proposed that the Part D premium be income-related using the same income levels and
categories.
28 This scenario would mirror the current alternative minimum tax (AMT) situation where the “millionaire’s tax”
affects more and more individuals each year who are not as far in the higher end of income distribution as those
individuals affected by the AMT when it was initially enacted.
29 The annual HHS poverty guidelines for 2008 are $10,400 for an individual and $14,000 for a couple. See Health and
Human Services, “Annual Update of the HHS Poverty Guidelines,” 73, No. 15 Federal Register 3971-3972, January
23, 2008.
30 The qualifying levels are higher because, by law, $20 per month of unearned income is disregarded in the
calculation. Centers for Medicare and Medicaid Services, , CMS Publication No. 10126, March 2008,
http://www.medicare.gov/publications/pubs/pdf/10126.pdf.
31 The qualifying levels are calculated the same way as for the QMB program.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŗŚȱ

Ž’ŒŠ›ŽDZȱŠ›ȱȱ›Ž–’ž–œȱ
ȱ
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.
žŠ•’¢’—ȱ —’Ÿ’žŠ•œȱǻ ȬŗǼȱ
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 2008 the monthly
income limit for QI-1 for an individual is $1,190 and for a couple $1,595. Medicaid protection for
these persons is limited to payment of the monthly Medicare Part B premium.32 The Medicare,
Medicaid and SCHIP Extension Act of 2007 (MMSEA, P.L. 110-173) extended the program
through June 2008 and provided $200 million for the six-month period from January 1, 2008
through June 30, 2008.33 The Medicare Improvements for Patients and Providers Act of 2008
(MIPPA, P.L. 110-275) extended the program through December 31, 2009 and added another
$700 million.34
›Ž–’ž–ȱ–˜ž—ȱŠ—ȱ——žŠ•ȱ —Œ›ŽŠœŽœȱ
The amount and the rate of growth of Part B premiums has received considerable attention in
recent years. Since beneficiary premiums are currently required to cover 25% of total
expenditures, the Part B premium will increase as total Medicare Part B expenditures increase.
Thus, recent growth in expenditures for physician services, led by the increase in imaging and
diagnostic services, produces pressure for beneficiary premiums to increase proportionately to
cover the 25% share of total expenditures. The Medicare trustees project that premiums for Parts
B (and D) will grow at a faster rate than Social Security benefits and consume a greater
proportion of benefits over time.35 In 2080, under conservative assumptions, a medium earner is
projected to need 15% of his or her benefits to pay the Part B premium and 23% of his or her
benefits to pay combined Parts B and D premiums.36
As noted, an individual’s Social Security payment cannot decrease from one year to the next as a
result of an increase in the Part B premium (except for those subject to the income-related
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. Further, the hold
harmless provision does not apply to the premiums for the Part D prescription drug program.
Individuals enrolled in a Part D plan with a higher premium or newly enrolling in a plan in 2009
might see a reduction in their social security checks.37

32 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 who 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.
33 P.L. 110-173, Section 203.
34 P.L. 110-275, Section 111.
35 The Boards of Trustees, Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, The
2008 Annual Report of the Boards of Trustees
, Washington, DC, March 25, 2008, pp. 77-84.
36 In their 2008 Annual Report, the trustees note that “projected SMI expenditures are substantially understated because
future reductions in physician payment rates, required under current law, are unrealistic and very likely to be
overridden by Congress.” (p. 77) See also Romig, op. cit.
37 MMA added a new Medicare Part D drug benefit, effective January 1, 2006. The cost of this drug benefit is
(continued...)
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŗśȱ

Ž’ŒŠ›ŽDZȱŠ›ȱȱ›Ž–’ž–œȱ
ȱ
The tension between current law, which prescriptively determines physician payment updates,
and the recent history of Congressional actions to override the statutory formula creates an
ongoing dynamic that affects the Part B premium. Typically, the premium calculations are based
on current law provisions that include a formula for calculating the annual update to the physician
fee schedule. This formula has stipulated a reduction in the fee schedule conversion factor for
every year since 2003.38 Under current law, a significant reduction (21%) is slated to occur in
2010 and for a number of subsequent years.39
Each change made to avert the scheduled reductions had and continues to have the effect of
increasing overall Part B costs beyond the current law baseline and, by extension, the Part B
premium. Some proposals before Congress have attempted to shield Medicare beneficiaries from
premium increases by including hold-harmless provisions, however, these approaches would in
turn place additional pressure on the Treasury and the general revenues that are needed to cover
the expenses not offset by premiums.
ŠŽȱ—›˜••–Ž—ȱŽ—Š•¢ȱ
Periodically, proposals have been offered to modify or eliminate the Part B premium penalty
either for all enrollees or alternatively for a selected population group. For example, a number of
persons suggested that the penalty should not apply to certain military retirees who declined Part
B coverage. As noted above, these persons now have access to TRICARE for Life, provided they
enroll in Part B. MMA waived the Part B penalty for persons enrolling in both programs by the
end of 2004.
Some have suggested further modifying the penalty provision to limit both the amount and the
duration of the surcharge, such as is the case for delayed Part A enrollment. While some of the
reasons for limiting the Part A penalties could also be offered for Part B, there are some
significant differences. First, since almost all aged persons are automatically entitled to Part A,
the Part A delayed enrollment penalty could affect only a small number of persons compared to
the potential number under Part B. Second, persons who voluntarily enroll in Part A pay the full
actuarial cost of Part A coverage while Part B enrollees currently pay only 25% of the actuarial
cost with federal general revenues picking up the remainder. Third, the amount of the maximum

(...continued)
accounted for separately and has no effect on the Part B premium. However, beneficiaries enrolled in MA-PD plans
that provide Part B and Part D services (as well as Part A services) may face a single premium that could increase at a
rate different than the stand-along Part B premium.
38 Congress overrode the reductions that were slated to occur in 2003-2009 under the Consolidated Appropriations
Resolution (CAR, P.L. 108-7, enacted in February 2003), the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (MMA, P.L. 108-173), the Deficit Reduction Act of 2005 (DRA, P.L. 109-171, enacted
February 8, 2006) the Tax Relief and Health Care Act of 2006 (TRHCA, P.L. 109-432, enacted December 20, 2006),
the Medicare, Medicaid and SCHIP Extensions Act (MMSEA, P.L. 110-173, enacted December 29, 2007), and the
Medicare Improvements for Patients and Providers Act (MIPPA, P.L. 110-275, enacted July 15, 2008). CAR increased
physician payments for 2003; MMA increased physician payments for 2004 and 2005; DRA froze 2006 physician
payments at the 2005 level (thereby overriding a scheduled reduction); TRHCA continued the freeze for an additional
year; MMSEA gave physicians an increase for the first six-month of 2008, which MIPPA extended through the end of
2008; and MIPPA also provided an additional increase for 2009. For a discussion of these payment issues, see CRS
Report RL31199, Medicare: Payments to Physicians, by Jennifer O'Sullivan.
39 CBO Cost Estimate, “H.R. 6331: Medicare Improvements for Patients and Providers Act of 2008,” July 23, 2008,
http://www.cbo.gov/ftpdocs/95xx/doc9595/hr6331pgo.pdf.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŗŜȱ

Ž’ŒŠ›ŽDZȱŠ›ȱȱ›Ž–’ž–œȱ
ȱ
10% Part A surcharge is considerably larger than what a maximum 10% Part B surcharge would
be and thus is more likely to serve as a disincentive to delayed enrollment.
˜–™Š›Š’ŸŽȱ˜œȱ“žœ–Ž—ȱ›˜›Š–ȱ
MMA requires the Secretary to establish a six-year comparative cost adjustment (CCA) program
beginning in 2010. 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, could 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 cannot
exceed 5% of the amount of the basic monthly Part B premium, as otherwise determined.
Skeptics doubt that the program will be implemented on time if at all, citing the repeal of the
Medicare Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS)
Competitive Bidding Program as an example of the political climate for competitive bidding
programs.40
Ž•ŠŽȱ œœžŽœȱ
Š›ȱȱŽžŒ’‹•Žȱ
Prior to 2003, the Part B deductible was set in statute. MMA set the 2005 deductible level at $110
and required that the deductible be indexed to the annual percentage increase in the Part B
actuarial rate for aged beneficiaries beginning with 2006 (rounded to the nearest $1).41 The Part B
annual deductible for 2009 is $135 for all beneficiaries.42 Initially, the annual deductible amount
was greater than the annual cost of the premium ($50 vs. $36 in 1967) but this relationship
switched in 1970 and now the annual cost of the Part B premium is nearly an order of magnitude
greater than the annual deductible ($1,156.80 vs. $135 in 2009). See Figure 4.

40 MMA required that CMS implement competitive bidding for DME with the first round to be initiated in 10 MSAs in
2008 and an additional 70 MSAs covered in the second round (2009). MIPPA, enacted into law over a veto on July 15,
2008, cancelled contracts that had taken effect only a few days before on July 1, 2008 and delayed the implementation
of the DMEPOS National Competitive Bidding Program; the first round is to begin in 2009 and the second in 2011. For
more information see http://www.cms.hhs.gov/center/dme.asp.
41 Section 629 of the MMA.
42 CMS Federal Register, Sept. 24, 2008, op. cit.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŗŝȱ

Ž’ŒŠ›ŽDZȱŠ›ȱȱ›Ž–’ž–œȱ
ȱ
Figure 4. Annual Part B Deductible and Premium Amounts
1966-2009
1400
1200
1000
$)
al
in

800
nom
t (
s
o
C

600
Annual
400
200
0
8
0
8
4
6
8
4
2
4
8
1966
196
197
1972
1974
1976
197
1980
1982
198
198
198
1990
1992
199
1996
1998
2000
200
200
2006
200
Annual Deductible
Annual Standard Premium

Source: CRS figure, based on the 2008 Annual Report of the Boards of Trustees of the Federal
Hospital Insurance and Federal Supplemental Medical Insurance Trust Funds, Table V.C2. – SMI Cost
Sharing and Premium Amounts.
Š›ȱȱ›Ž–’ž–ȱ
The vast majority of persons turning age 65 are automatically entitled to Medicare Part A based
on their own or their spouse’s work in covered employment. Most persons not automatically
covered under Part A have health insurance coverage through a former government employer.
However, some persons may need Part A protection. These persons may voluntarily purchase Part
A coverage.43 The Part A premium is equal to the actuarial value of the Part A benefit ($423 in
2008). Persons who have at least 30 quarters of covered employment have a reduced Part A
premium ($233 in 2008).44 Persons who voluntarily purchase Part A must also purchase Part B.

43 An individual eligible to enroll must be a resident of the United States. Further, the individual must either be a citizen
or an alien lawfully admitted for permanent residence who has resided in the United States continuously for the
immediately preceding five years.
44 On December 21, 2000, the President signed into law P.L. 106-554, the Consolidated Appropriations Act, 2001. This
law exempts certain state and local retirees, retiring prior to January 1, 2002, from the Part A delayed enrollment
penalty. These are groups of persons for whom the state or local government elects to pay the Part A delayed
enrollment penalty for life. The amount of the penalty which would otherwise be assessed is to be reduced by an
amount equal to the total amount of Medicare payroll taxes paid by the employee and the employer on behalf of the
employee. The provision applies to premiums beginning January 2002.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŗŞȱ

Ž’ŒŠ›ŽDZȱŠ›ȱȱ›Ž–’ž–œȱ
ȱ
A penalty is imposed for persons who delay Part A enrollment beyond their initial enrollment
period (which is the same seven-month period applicable for enrollment in Part B). However,
both the amount of the penalty and the duration of the penalty are different than under Part B.
Persons who delay Part A enrollment for at least 12 months beyond their initial enrollment period
are subject to a 10% premium surcharge.45 The surcharge is 10% regardless of the length of the
delay. Further the surcharge only applies for a period equal to twice the number of years (i.e., 12-
month periods) during which an individual delays enrollment. Thus, an individual who delays
enrollment for three years under Part A would be subject to a 10% penalty for six years. A person
who delays enrollment for the same three-year period under Part B would be subject to a
permanent 30% penalty.46

45 An individual enrolled in a health maintenance organization (HMO) can sign up for Part A at any time while in the
HMO and up to eight months after HMO coverage has ended. Any time the individual is enrolled with the HMO does
not count toward determining whether the individual has delayed enrollment.
46 Prior to enactment of the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), there was no upper
limit on the amount of the Part A surcharge or duration of the surcharge. COBRA limited the amount of the Part A
surcharge to 10% and the duration to twice the period of delayed enrollment.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŗşȱ

Ž’ŒŠ›ŽDZȱŠ›ȱȱ›Ž–’ž–œȱ
ȱ
™™Ž—’¡ǯ ’œ˜›¢ȱ˜ȱ‘ŽȱŠ›ȱȱ›Ž–’ž–ȱ
˜ŸŽ›—’—ȱ˜•’Œ¢ȱŠ—ȱŽ’œ•Š’ŸŽȱž‘˜›’¢ȱ
Table A-1. Monthly Part B Premiums, 1966-2009
Monthly
Effective
Year
premium
date
Governing policy; legislative authority
1966
$3.00
7/66
Fixed dollar amount; Social Security Amendments (SSA) of 1965
1967
$3.00

Fixed dollar amount; SSA of 1965
1968
$4.00
4/68
Fixed dollar amount through March; Medicare 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
1973
$6.30
9/73
50% of costs; SSA of 1967 (COLA limit, added by SSA of 1972, could
have applied, but was not needed). Limitations imposed by Economic
Stabilization program set 7/73 amount at $5.80 and 8/73 amount at
$6.10.
1974
$6.70
7/74
50% of costs; SSA of 1967 (COLA limit, added by SSA 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
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
1983
$12.20

Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) had set 25%
rule for updates in 7/83 and 7/84. 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
1988
$24.80
1/88
25% of costs, Consolidated Omnibus Budget Reconciliation Act of
1985
1989
$31.90
1/89
25% of costs, OBRA 87, plus $4 catastrophic coverage premium added
by Medicare Catastrophic Coverage Act of 1988
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŘŖȱ

Ž’ŒŠ›ŽDZȱŠ›ȱȱ›Ž–’ž–œȱ
ȱ
Monthly
Effective
Year
premium
date
Governing policy; legislative authority
1990
$28.60
1/90
25% of costs; OBRA 89. Medicare Catastrophic 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
2007
$93.50
1/07
25% of costs; BBA 97 (MMA and DRA authorize higher premiums for
high-income enrollees: 1st year of 3-year phase-in)
2008
$96.40
1/08
25% of costs; BBA 97 (MMA and DRA authorize higher premiums for
high-income enrollees: 2nd year of 3-year phase-in)
2009
$96.40
1/09
25% of costs; BBA 97 (MMA and DRA authorize higher premiums for
high-income enrollees: 3rd year of 3-year phase-in)
Source: Various Annual Trustee Reports, including the 2008 Annual Report of the Board of Trustees of the
Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Fund, March 2008, and Centers
for Medicare and Medicaid Services, “Medicare Program: Medicare Part B Monthly Actuarial Rates, Premium
Rate, and Annual Deductible Beginning January 1, 2009,” 73 Federal Register 55089-55096, September 24, 2008.
Note: CMS estimates that approximately 4% of high-income enrollees paid higher premiums in 2007 and 5%
paid or will pay higher premiums in 2008 and 2009.

ž‘˜›ȱ˜—ŠŒȱ —˜›–Š’˜—ȱ

Jim Hahn

Analyst in Health Care Financing
jhahn@crs.loc.gov, 7-4914

˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
Řŗȱ

Ž’ŒŠ›ŽDZȱŠ›ȱȱ›Ž–’ž–œȱ
ȱ
Œ”—˜ •Ž–Ž—œȱ
This report includes material previously contained in CRS Report RS21731, Medicare: Part B Premium
Penalty
, by Jennifer O'Sullivan, who also wrote the original version of this report.



˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŘŘȱ