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Medicare Part B Premiums Will Reach $93.50 a Month in 2007

By Mary Agnes Carey, CQ HealthBeat Associate Editor

September 12, 2006 -- Medicare beneficiaries will pay $93.50 per month next year for their "Part B" coverage for physician visits and other outpatient services, with higher-income beneficiaries paying a bigger share of the premium costs for the first time in Medicare's history, government officials announced on Tuesday.

The 2007 premiums will be $5, or 5.6 percent, higher than the current $88.50 premium. The premium will be lower than the 11.2 percent increase ($98.40 monthly) the administration predicted in July as part of its midyear review.

Medicare officials said lower-than-expected physician spending growth and additional data on expenditures for Part B spending helped reshape the estimates. Centers for Medicare and Medicaid Services Administrator Mark B. McClellan said the premium increase is the smallest since 2001 and less than half of the dollar increase in the premium for 2006.

But the figure does not cover a potential freeze of a scheduled 5.1 percent cut in Medicare physician payments next January. If Congress were to stop that payment cut, it would increase 2008 Part B premiums by $1.50 per month, McClellan said.

Ron Pollack, executive director of the liberal-leaning advocacy group Families USA, said the increase is bad news for seniors on fixed incomes and for those who may soon fall into the "doughnut hole" gap in the Medicare drug benefit.

After the $250 deductible, the government pays 75 percent of prescription costs but stops paying altogether when a beneficiary's out-of-pocket spending reaches $2,250. Medicare picks up none of the prescriptions costs between $2,250 and $5,100—the "doughnut hole"—in out-of-pocket outlays, after which it pays 95 percent.

"The doughnut hole is going to get larger and other out-of-pocket costs will increase," Pollack said. "And another shoe will drop if the doctors get the fix they have been receiving in the past, and it's likely they will receive it again. . . . Health care is going to take a bigger bite out of their [seniors] incomes than in the past."

An AARP spokeswoman said on Tuesday, "Our bottom line is we want doctors to be paid fairly, but we also want beneficiaries to get value for their dollar. That's why we support a pay-for-performance system in Medicare" that would link the level of payment to the quality of service provided.

McClellan said rapid growth in Part B spending on hospital outpatient services accounts for about one-third of the 2007 premium increase. While outpatient spending growth has continued rapidly, the growth rate spending for physician fee schedule services slowed compared with trends in recent years; although the 2007 projected volume and intensity growth for physician-related services is still high at 5 percent, CMS said in a news release.

Another reason for the Part B premium increase, McClellan said, is to restore Part B contingency reserves. In 2007, $5.50 of the monthly premium will go toward that fund.

Beneficiaries with higher incomes will pay a greater share of their Part B premiums beginning next year. Medicare traditionally pays 75 percent of the premium while beneficiaries cover the remaining 25 percent, but beneficiaries with incomes of $80,000 or higher will pick up more of the tab starting next year, with the highest earners paying 80 percent of the total cost by the end of the three-year transition period.

For example, beneficiaries with annual incomes of between $80,000 and $100,000 ($160,000 to $200,000 for those filing jointly) will pay an additional $12.50 per month, for a total of $106.00. Beneficiaries with incomes greater than $200,000 ($400,000 or more for couples) will pay $68.60 more per month, for a total of $162.10.

McClellan said the higher premiums would be paid by less than one percent of Medicare's approximately 43 million beneficiaries. While McClellan said those beneficiaries who pay higher premiums will still get their money's worth—by paying about $2,000 in premiums but receiving $4,300 in services—9,000 higher-income Medicare beneficiaries are expected to drop out of the program in 2007 and 30,000 are predicted to leave by 2010. He also said that charging higher Medicare Part B premiums to more affluent beneficiaries would raise $20 billion over the next decade.

Separately on Tuesday, two groups who have supported the Medicare drug benefit released surveys that found beneficiaries are pleased with the program.

One survey from the Healthcare Leadership Council found that more than eight out of every 10 Medicare beneficiaries enrolled in the benefit are satisfied with their coverage but that more work needs to be done to educate beneficiaries about what coverage options are available to help cover the doughnut hole coverage gap.

A separate survey from America's Health Insurance Plans, a trade group representing health insurers, found that 81 percent of Medicare beneficiaries enrolled in the benefit said that it covered the drugs they need and 70 percent of seniors would recommend that others sign up for the benefit as well.

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