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Medicare Part B Monthly Premiums May Hit $100

By John Reichard, CQ HealthBeat Editor

October 9, 2007 – The announcement last week by Medicare that 2008 monthly premiums for doctor and other Part B services would rise by their smallest amount since 2001 overlooked the likelihood of physician payment revisions later this year that could bring the premiums up to about $100.

Congressional Democrats may try to pay for the cost of the doctor payment fix in a way that doesn't drive the premiums that high. But various health industry lobbies will likely spring into action to try to block the types of payment revisions that would be needed to keep Part B premiums from reaching the century mark.

CMS boasted in an Oct. 1 "fact sheet" that monthly Part B premiums will rise in 2008 by the smallest percentage increase since 2001. Now at $93.50, the premiums will rise 3.1 percent, to $96.40 in 2008, the agency statement said. But that estimate is based on current law, which calls for a projected cut of 10 percent in Medicare payments to doctors in 2008. Since Congress is widely expected to pass legislation later this year to erase that cut, the premium increase may be around 7 percent, bringing the monthly premium to about $100.

Part B of the Medicare program covers physician services, outpatient hospital services, certain home health services, durable medical equipment, and other items. Premiums pay a fixed percentage of Part B outlays, which means that premiums rise as Part B spending rises. Since eliminating the cut would add somewhere in the neighborhood of $20 billion to Part B spending over five years, premiums would go up considerably more than the $96.40 CMS is currently projecting.

"If we had assumed a freeze on physician payment rates for 2008, rather than the approximately 10 percent reduction that would be required under current law, then the Part B premium could have been as much as $100," said Richard S. Foster, the chief actuary for the Centers for Medicare and Medicaid Services. CMS also said in the fact sheet that it is able to offset some of the increase in the part B premiums in 2008 because of a previous accounting error that overstated the level of Part B spending. Had there been no adjustment for the accounting error and a physician payment freeze were assumed, the monthly premium would have been as much as $103, Foster said.

The $100 mark is significant because so many seniors live on modest, fixed incomes, said William Vaughan, senior policy analyst for Consumers Union. Of retirees getting Social Security checks, 21 percent of married couples and 41 percent of single people live almost entirely on that income, said Vaughan, citing Social Security Administration figures. The average monthly Social Security check is $1,050, he added. Assuming an average cost of living increase in Social Security payments in 2008 of about $30 a month, about one-fifth of that would go to rising Part B premiums. In some cases, up to one-third or more of the cost-of-living hike would go to a combination of rising Part B and Part D premiums, he said. Part D premiums pay for Medicare prescription drug coverage. That wouldn't leave much, Vaughan added, for rising food, housing, transportation, or other costs.

A couple of things could still happen that would keep monthly Part B premiums from reaching $100 next year. One is that if Congress doesn't pass legislation until late in the year to erase the 10 percent cut, the legislation's impact on Part B premiums wouldn't be felt for up to one year later, because CMS would already have announced the final premium amount, policy analysts said. "What they've done in the past is keep the premium the same for a number months and then recapture the lost amount by charging a higher amount later," Vaughan said. But "it does get recaptured," he added.

Another possibility is that the cost of the legislation erasing the cut is paid for by trimming other spending in Part B. House-passed Medicare revisions earlier this year erasing the doctor payment cut would have kept Part B premium increases down by trimming payments to Medicare Advantage plans as well for anemia drugs and home oxygen, among other services. The lobbies for those sectors of health care are likely to fiercely resist those Part B "pay fors." But some of those payment changes will stick, said a policy analyst who is an expert on physician payment issues. "I think a lot of the cuts will come out of Part A" of Medicare, which pertains to hospital and other inpatient costs, he said. "But there will be Part B cuts."

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