Good News, Bad News In Medicare Trustees Report

By Phil Galewitz
Kaiser Health News, July 23, 2015

As Medicare approaches its 50th anniversary next week, the federal program got some welcome financial news Wednesday: Its giant hospital trust fund will be solvent until 2030, and its long-term outlook has improved, according to a report from the program’s trustees.

But the report warned that several million Medicare beneficiaries could see their Medicare Part B monthly premiums skyrocket by 52 percent in January — from $104.90 to $159.30. Medicare Part B, which is paid for by a combination of federal funds and beneficiary premiums, generally covers physician and outpatient costs.

The huge rate hike is predicted because of a confluence of two factors: Medicare Part B costs increased more than expected last year, and Social Security is not expected to have a cost of living increase next year. By law, the cost of higher Medicare Part B premiums can’t be passed on to most Medicare beneficiaries when they don’t get a Social Security raise. As a result, the higher Medicare costs have to be covered by just 30 percent of Medicare beneficiaries. This includes the 2.8 million Medicare enrollees new to the program next year, 3.1 million Medicare beneficiaries with incomes higher than $85,000 a year and 1.6 million Medicare beneficiaries who pay their premium directly instead of having it deducted from Social Security. An additional 9 million people affected by the higher rates are so called “dual eligibles” — those on Medicare and Medicaid. States pay the Medicare Part B premium for duals.

Medicare Part B premiums are set largely by a complicated formula written into law. The trustees’ predictions on premiums are typically close to the final rates that are announced each fall by the Department of Health and Human Services.

Medicare advocacy groups expressed concern about the projected rate increase. Judith Stein, executive director of the Center for Medicare Advocacy, said she is concerned the predicted Medicare Part B premium hike signals that, for many, the program is becoming too expensive. She said the higher premiums will force more seniors to join Medicare Advantage which offers lower costs but also restricts which providers they can use.

“I am concerned that people will start to rail against Medicare rather than love it, as they have for 50 years,” Stein said.

The trustees report noted that the financial health of the program is being helped by factors such as an improved economy, while other factors such as more seniors in private Medicare Advantage are increasing costs. The government pays higher costs for those in Medicare Advantage, which is managed care.

http://khn.org/news/good-news-bad-news-in-medicare-trustees-report/

Medicare Trustees Report (Premiums covered in Appendix E):http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trend…

Fifty years ago Medicare was established as an egalitarian program designed to ensure affordable access to care, beginning with our senior citizens, with plans to eventually cover everyone. Financing was through equitable payroll taxes and general revenues based on ability to pay. Benefits were the same for everyone eligible. Its success can be attributed to citizen solidarity in support of this highly popular program.

However, very powerful political elements, driven by conservative and libertarian ideology, have been successful in preventing a serious effort to expand Medicare to cover everyone. Instead, they have been trying to shift the responsibility of financing Medicare away from an equitable public risk pool and toward privatizing the system. We are already witnesses a bait and switch operation in which individuals are enticed into private Medicare Advantage plans not realizing that the intent is to eventually shift to a defined contribution method of financing (premium support, vouchers) in which the individual will be responsible for an ever-increasing share of the costs.

Initially everyone paid the same premiums for Part B Supplemental Medical Insurance (SMI) that covered physician, outpatient and other services. The premiums currently cover one-fourth of the Part B costs, and the other three-fourths is paid through general revenues. The premium is regressive since higher-income individuals pay a smaller percentage of their income for premiums than do lower-income individuals (though income taxes for general revenues are progressive). It was decided to increase premiums for higher-income individuals, though without reducing premiums for those with lower incomes. This has a net affect of shifting costs away from the government pool and onto individuals. Understandably, many of those who had to pay higher premiums thought that they were not getting as good of a deal as the others. The perception has now been established that the benefits are no longer equal for all.

The current Medicare Trustees Report projects what is happening to these Part B premiums. It is anticipated that there will not be a cost-of-living increase in Social Security benefits next year. Part B premiums are deducted from the Social Security benefits, but the rules prohibit any increase in Part B premiums from reducing the Social Security payment. Thus the 70 percent of Medicare beneficiaries who pay the premiums through Social Security deductions will not have any increase in their Part B premiums next year.

Since one-fourth of Part B costs are paid by the premiums, and 70 percent of beneficiaries will have no increases in their premiums, the other 30 percent will have to make up the difference. The numbers are significant. For the 30 percent without a freeze in their premiums, the standard premium is projected to increase from $104.90 to $159.30. For individuals with higher incomes, premium increases are on a sliding scale. Those at the 80 percent threshold will see their Part B premiums increase from the current $335.70 to an estimated $509.80 (Table V.E3 in Trustees Report). These individuals surely will think that this is not a good deal.

With diminishing solidarity, many of these wealthier individuals will be intrigued with a system that allows them to take care of their own health care needs by buying an insurance product in the marketplace, and leave the rest of us on our own to take care of ourselves. This, of course, is where Medicare Advantage and the next iteration of premium support is taking us.

Egalitarianism. Solidarity. Social justice. Your brother’s keeper. What happened? I guess we’ll have to ask Cain. Or maybe the Koch brothers since we don’t have Cain’s phone number.