Medicare Fix-It (for now)

Congressional leaders and the Obama Administration have fixed the potentially alarming increase in Medicare Part B premiums under the recently-passed government budget deal.

Medicare Part B covers most health care services outside of hospitals, and thus represents one of the biggest expense items in the government-run health system.  The program is voluntary, but 91% of all Medicare beneficiaries are enrolled in Part B.

The problem that had to be fixed arose because under Social Security and Medicare rules the government is required to collect 25% of all expected Part B costs from recipients each year—in the form of premiums.  The total Part B cost was anticipated to reach $171.2 billion 2016.

However, another provision says that in years where there is no increase in Social Security benefits—such as next year—Medicare premiums must be held steady for current Social Security recipients.  This so-called “hold harmless” provision in the Social Security Act protects about 70% of Social Security beneficiaries from increases in Medicare Part B. As a result, the entire increase would have had to be borne by enrollees who either don’t yet collect Social Security checks, enrollees with incomes above $85,000 (single) or $170,000 (married), or couples who are dual Medicare-Medicaid beneficiaries.  In all, these three categories represent the other 30% of 2016 Medicare beneficiaries—roughly 7 million Americans–and these individuals could have seen their Part B premiums increase by as much as 52%..

To avoid this distasteful outcome, the new budget deal creates a $12 billion loan from the U.S. Treasury to the Medicare trust fund to reduce the impact on those Medicare participants.  Instead of seeing their monthly premiums go up from $104.90 to $159.30, they will experience a more modest 14% premium increase, to $120 a month next year, plus a monthly surcharge of $3.  This will allow premiums to rise more gradually, and spread the cost over a longer period of time. Looking ahead, the legislation provides this same remedy in 2017 if there is no cost of living adjustment for Social Security in that year.


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