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CMS Announces Medicare Premium Increases for 2008

By Mary Agnes Carey and John Reichard, CQ Staff

October 1, 2007—Medicare beneficiaries will pay more for their hospital and outpatient services in 2008, the Centers for Medicare and Medicaid Services (CMS) announced Monday.

The deductible for Part A, which covers hospital inpatient services, will be $1,024 in 2008, a $32 increase from the $992 deductible in 2007. Beneficiaries must pay the deductible when admitted as a hospital inpatient and then are covered for up to 60 days of inpatient care.

The Part B monthly premium, which covers an array of services including visits to physician offices, home health services, and ambulatory surgical center services, will increase to $96.40 in 2008, up $2.90 or 3.1 percent from the $93.50 premium in 2007. CMS said the 2008 rise is the smallest percentage increase in the Part B premium since 2000. Higher income beneficiaries will pay a greater share of their monthly premiums, as prescribed by the 2003 Medicare drug law (PL 108-173).

David Sloane, director of Government Relations at AARP, said "the CMS estimate is artificially low," and fails to factor in a likely "payment fix" by Congress to block a sharp scheduled cut in payments. "This year CMS' estimate assumes that next year Congress will not override a 10 percent reduction in payment rates, defying history." Beneficiaries' Part B premiums will increase in future years if Medicare physician payments rise.

CMS said several factors account for the 3.1 percent increase in Part B premiums, including growth in certain areas of Medicare's fee-for-service program, including home health services, physician-administered drugs and durable medical equipment. In the Medicare Advantage program, increases in the average risk of enrolled beneficiaries, as well as the impact of fee-for-service cost growth on Medicare Advantage county benchmarks, also contributed to the rise. Beneficiary "risk" refers to their likelihood of requiring care and "county benchmarks" refer to standard Medicare payment rates.

In a statement, the American Medical Association said the growth in Medicare Advantage plans "is solely responsible" for the 2008 increase in Medicare's Part B premiums. "It is outrageous that all Medicare patients are helping subsidize overpayments to private insurance companies, while only one in five Medicare patients participates in a private Medicare plan," AMA Board Chairman Edward Langston said in a statement.

CMS said a portion of the Part B premium increase results from a need to raise contingency reserves in the Part B trust fund in anticipation of congressional action to avert a scheduled 10 percent reduction in Medicare physician payments.

CMS also said the increase in contingency reserves is somewhat offset by the correction of an accounting error. Beginning in May 2005, the agency said expenditures for certain Part A hospice benefits "were inadvertently drawn" from the Part B account of the Supplemental Medical Insurance (SMI) trust fund, rather than the Hospital Insurance (HI) trust fund. Fixing that error will reduce Part B outlays in 2008 and later years, CMS said. It also will result in a transfer of assets from the HI trust fund to the SMI trust fund, reimbursing the latter account for the misallocated hospice expenditures during fiscal years 2005 through 2007.

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