Order Code RL32582
CRS Report for Congress
Received through the CRS Web
Medicare: Part B Premiums
Updated October 19, 2006
Jennifer O’Sullivan
Specialist in Social Legislation
Domestic Social Policy Division
Congressional Research Service ˜
The Library of Congress
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, Improvement, 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 accounts for the new Part D drug benefit; Part D is 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. The 2007
monthly premium will be $93.50, an increase of 5.6% over the 2006 amount. The
Centers for Medicare and Medicaid Services (CMS, the agency that administers
Medicare) reports that the 2007 increase is the smallest percentage increase since
2001. This report will be updated when the 2008 premium is announced.
Contents
Financing Medicare Part B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Premium Calculations for 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Calculation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Factors Affecting the Calculation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Contingency Reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Income-Related Premium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
History of Part B Premium Calculation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Annual Update . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Income-Related Premium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Changes in 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Assistance for Low Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Current Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Premium Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Income-Related Premium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
President’s Budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
List of Tables
Table 1. Percentage of Part B Costs
Paid by High-Income Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Table 2. Beneficiary Premiums, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Table 3. Monthly Part B Premiums, 1966-2006 . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Medicare: Part B Premiums
Financing Medicare Part B
Introduction
Medicare Part B is financed through a combination of beneficiary premiums and
federal general revenues. In general, 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%. Beginning in 2007, higher-
income enrollees will pay a higher percentage of Part B costs. The Centers for
Medicare and Medicaid Services (CMS, the agency that administers Medicare)
estimates that approximately 4% of beneficiaries will pay a higher premium in 2007.1
The 2006 monthly Part B premium is $88.50. In 2007, the standard monthly
premium will be $93.50, an increase of $5.00 or 5.6% over the 2006 amount. The
increase reflects the increase in the costs of health care services funded under Part B.
CMS reports that the 2007 premium increase is lower than had been projected earlier
in the year. It is also slightly lower than the projected 6% increase in per capita
national health spending for 2007.
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.2 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 2007 increase of 3.3% represents an average monthly increase of $33
per retired worker.
1 CMS, Medicare Premiums and Deductibles for 2007, Fact Sheet, September 12, 2006
[http://www.cms.hhs.gov/apps/media/press/release.asp?Counter=1958].
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.
CRS-2
Premium Calculations for 2007
Each year, Medicare actuaries estimate total per capita incurred costs for the
following year. These amounts are established prospectively. Actual spending for
the year may be 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
reserve adjustment. The following outlines the calculations for 2007.
Calculation.3,4 The monthly premium for 2007 was calculated as follows.
Total monthly benefit costs of $423.18 were reduced by $75.30 for required
beneficiary cost-sharing. The resulting amount of $347.86 (rounded) was increased
by $7.80 for administrative expenses and reduced by $3.72 for interest earnings. This
total of $351.94 was further
increased by $22.06 for the contingency margin
adjustment; this has the effect of increasing the reserves. Twenty-five percent of the
resulting net per capita amount of $374.00 yields a 2007 standard premium amount
of $93.50.
Factors Affecting the Calculation. The premium increase from 2006 to
2007 is attributable to a number of factors. CMS reports that very rapid growth in
spending for hospital outpatient services is a major contributor. Although such
spending accounts for only 13% of total Part B spending, it accounts for one-third of
the increase in the 2007 premium. CMS further notes that outpatient hospital
spending accounts for more of the premium growth than spending for physicians
services and physician-related services (including lab tests and physician-
administered drugs) which together account for a larger share of Part B spending.
Payments under the physician fee schedule account for more than one-third of
spending under Part B. The law includes a formula for calculating the annual update
to the physician fee schedule. Use of this formula is expected to result in a
reduction
of 5.1% in 2007. (The amount of the actual reduction will be announced when the
final physician fee schedule is published later this year.) The 2007 premium
calculation is based on current law, and therefore factors in this reduction. It should
be noted that Congress overrode similar reductions scheduled to occur for 2003-
2006, which had the effect of increasing projected spending for those years. (See the
following discussion of contingency reserve). As of this writing, it is not clear
whether Congress will take a similar action for 2007. If it does, the financial effect
of the increase will first be reflected in the 2008 premium.
Contingency Reserve. Another factor contributing to the premium increase
is the adjustment for the contingency reserve. Actuaries anticipate the reserves are
insufficient to cover contingencies; therefore, an amount needs to be added to the
otherwise applicable premium amount.
3 Department of Health and Human Services, CMS,
Medicare Program: Medicare Part B
Monthly Actuarial Rates, Premium Rates, and Annual Deductible for Calendar Year 2007,
Federal Register, vol.71, no.180, September 18, 2006, 54665.
4 The actual calculation presented in the regulation shows the numbers for the “monthly
actuarial rate” which equals 50% of costs.
CRS-3
For several years, CMS reduced the otherwise applicable premium to draw
down an anticipated surplus. However, this changed beginning in 2005. CMS notes
that the change in the direction of the contingency adjustment reflects faster-than-
anticipated expenditure growth, as well as enactment of three pieces of legislation
that 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), the Medicare Prescription Drug, Improvement, and Modernization
Act of 2003 (MMA, P.L. 108-173), and the Deficit Reduction Act of 2005 (DRA,
P.L.109-171, enacted February 8, 2006). CAR increased physician payments for
2003; MMA increased physician payments for 2004 and 2005; and DRA froze 2006
physician payments at the 2005 level (thereby overriding a scheduled reduction).5
Income-Related Premium
Beginning in 2007, Part B premiums are increased for higher-income enrollees.
The increase is phased in over 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 1).
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. Thus, 2005
income is used to calculate the 2007 premium amount. 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. Major
life-changing events, as defined in proposed rule-making, include death of a spouse,
marriage, divorce, partial or full work stoppage, loss 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), or reduction or loss of pension income due to termination
or reorganization of a pension plan or scheduled cessation of pension benefits.6
5 For a discussion of these payment increases, see CRS Report RL31199,
Medicare:
Payments to Physicians, by Jennifer O’Sullivan.
6 Social Security Administration,
Medicare Part B Income-Related Monthly Adjustment
Amount, Notice of Proposed Rule-Making, vol. 71, no. 42, March 3, 2006, 10926.
CRS-4
Table 1. 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
28.3
31.7
35
$100,001-$150,000
$200,001-$300,000
33.3
41.7
50
$150,001-$200,000
$300,001-$400,000
38.3
51.7
65
more than $200,000
more than $400,000
43.3
61.7
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.
Table 2 shows the 2007 premium amounts. CMS estimates that approximately
4% of Part B enrollees will pay a higher premium in 2007, with less than 1% paying
the highest premium amount of $161.40.
Table 2. Beneficiary Premiums, 2007
Modified Adjusted Gross Income (AGI)
Premium
Single
Couple
$80,000 or less
$160,000 or less
$93.50
$80,001-$100,000
$160,001-$200,000
$105.80
$100,001-$150,000
$200,001-$300,000
$124.40
$150,001-$200,000
$300,001-$400,000
$142.90
more than $200,000
more than $400,000
$161.40
Note: Married persons who lived with their spouse at some point during the year but who filed
separate returns are subject to different premium amounts. Those with incomes greater than $80,000
and less than or equal to $120,000 have premiums of $143.40. Those with incomes greater than
$120,000 have premiums of $162.10.
The current law provision, which specifies that a beneficiary’s check cannot go
down 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.
CRS-5
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.
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.7 (See
Table 3 for a
history of Part B premiums.)
7 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.
CRS-6
Table 3. 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
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
CRS-7
Monthly
Effective
Year
Governing policy; Legislative authority
premium
date
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.)
* Approximately 4% of high-income enrollees will pay higher premiums.
Source: Various Annual Reports. The 2006 Annual Report of the Board of Trustees of the Federal
Hospital Insurance and Federal Supplementary Medical Insurance Trust Fund, Mar. 2006, and 71
Federal Register 54665, Sept. 18, 2006.
Income-Related Premium
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.
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.
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
CRS-8
that the DRA provision accelerating the phase-in would increase premium collections
by $1.6 billion over the 2007-2010 period.8
It should be noted that when CMS announced the premium levels in September
2006, it estimated that 4% of enrollees would be subject to the higher premium
amounts. 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 cannot exceed 5% of the amount of the basic monthly Part B
premium, as otherwise determined.
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
8 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.
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].
CRS-9
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
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
Current Issues
Premium Amount
Despite the fact that the 2007 standard premium amount is somewhat less than
previously forecast, 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 (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.12 Further, since the hold harmless provision does not
apply to the premiums for the new Part D prescription drug program, some persons
may see a reduction in their social security checks.13
The 2007 premium calculation was based on current law provisions that include
a formula for calculating the annual update to the physician fee schedule. As noted
earlier, use of this formula will result in a reduction in the fee schedule rates for 2007
10 This is calculated the same way as the QMB level. See the preceding footnote.
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.
12 See CRS Report RL33364,
The Impact of Medicare Premiums on Social Security
Beneficiaries, by Kathleen Romig
13 MMA added a new Medicare Part D drug benefit, effective January 1, 2006. It should be
emphasized that the cost of this drug benefit is accounted for separately and has no effect
on the Part B premium.
CRS-10
(and for a number of subsequent years). Congress overrode similar reductions that
were slated to occur in 2003-2006. As of this writing, it is not clear if the Congress
will take a similar action with respect to the 2007 update. If it elects to do so, this
will have the effect of increasing overall Part B costs, and by extension the Part B
premium. Since the 2007 premium amount has already been announced, the increase
would first be reflected in the 2008 premium.
Income-Related Premium
The income-related premium was enacted in response to the concern that lower-
income taxpayers should not be financing 75% of Part B costs for the aged. However,
some observers have suggested that this might actually 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. However, at this time, there are few alternatives available
for this population in the private insurance market.
President’s Budget
In 2007, the income threshold for higher Part B premiums 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
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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