PatriciaA. Davis
Specialist in Health Care Financing
Medicareis a federal insurance program that pays for covered health care services ofmost individuals aged 65 and over and certain disabled persons. In 2012,the program is expected to cover 50 million persons (41 million aged and 9million disabled) at a total cost of $586 billion. Most individuals (ortheir spouses) who are 65 and older, and have worked in covered employmentand paid Medicare payroll taxes for 40 quarters receive premium-free MedicarePart A (Hospital Insurance). Those entitled to Medicare Part A (regardlessof whether they are eligible for premium-free Part A), have the option ofenrolling in Part B, which covers such things as physician and outpatientservices and medical equipment.
Beneficiaries have a seven-month initial enrollment period, but those whoenroll in Part B after their initial enrollment period and/or reenrollafter a termination of coverage may be subject to a “delayed enrollmentpenalty” which is equal to a 10% surcharge for each 12 months of delay in enrollmentand/or reenrollment. Under certain conditions, select beneficiaries are exemptfrom the delayed enrollment penalty; these include working individuals(and their spouses) with group coverage, some military retirees, and someinternational volunteers.
While Part A is financed primarily by payroll taxes paid by current workers,Part B is financed through a combination of beneficiary premiums andfederal general revenues. The Balanced Budget Act of 1997 (P.L. 105-33)permanently set standard Part B premiums to cover 25% of projected percapita Part B program costs for the aged, with federal general revenuesaccounting for the remaining amount. In general, if projected Part B costsincrease or decrease, the premium rises or falls proportionately.
Most Part B participants must pay monthly premiums, which do not vary with abeneficiary’s age, health status or place of residence. However, since2007, higher-income enrollees pay higher premiums to cover a higherpercentage of Part B costs. Premiums of those receiving benefits throughSocial Security are deducted from their monthly payments. Additionally, certainlowincome beneficiaries may qualify for Medicare cost-sharing and/orpremium assistance from Medicaid through a Medicare Savings Program. TheSocial Security Act includes a provision that holds most Social Securitybeneficiaries harmless for increases in the Medicare Part B premium; affectedbeneficiaries’ Part B premiums are reduced to ensure that their Social Securitychecks do not decline from one year to the next.
Each year, the Centers for Medicare & Medicaid Services (CMS) determinesthe Medicare Part B premiums for the following year. The standard monthlyPart B premium for 2012 is $99.90. Higher-income beneficiaries, currentlydefined as those with incomes over $85,000 a year, or couples with incomesover $170,000 per year, pay $139.90, $199.80, $259.70, or $319.80 per month,depending on their income levels.
Current issues related to the Part B premium that may come before Congressinclude the amount of the premium and the rate of increase in recent years(and the potential net impact on Social Security benefits), modificationsto the late enrollment penalty, and possible increases in Medicarepremiums as a means to reduce federal spending and deficits.
Date of Report: November 6, 2012
Number of Pages: 36
Order Number: R40082
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