House Passes Budget Agreement That Would Reduce Dramatic Rise in Part B Costs for Beneficiaries – Bill Moves to Senate; Advocates Remain Concerned About Underlying Causes

Today, the U.S. House of Representatives passed the Bipartisan Budget Act of 2015.  Broadly speaking, this agreement avoids a pending government default by raising the nation’s debt ceiling, and prevents relief from budgetary “sequester” spending limits that have constrained social service programs.  The bill also provides temporary stability to the Social Security Disability Insurance fund.

On the Medicare front, this budget agreement would reduce an expected spike in the Medicare Part B deductible and premiums for 2016. The premium increase, expected to be over 50% for beneficiaries who do not already have premiums taken from their Social Security, will instead be about 15%. Similarly, the Part B deductible would increase approximately $20.00 rather than the previously projected $70.00 or more (note that these figures are approximate because the Centers for Medicare & Medicaid Services (CMS) has not yet released the final 2016 Medicare premium and cost-sharing amounts).  The cost of limiting the increases will be paid for by a loan of general revenue from the Federal Treasury to the Part B Trust Fund. Medicare beneficiaries will pay back the loan over time from set increases to future premiums.

In short, the current budget agreement would keep 2016 Part B premiums for those who are not held harmless (as described below) – roughly 30% of the Medicare population – to approximately $120 per month.   Similarly, the agreement would keep the 2016 Part B deductible for everyone to roughly $167 per year.  Absent this Congressional action, these figures would be significantly higher.

Background

On July 22, 2015, the Medicare and Social Security Trustees issued the 2015 Annual Report of the Boards of Trustees of the Federal Hospital Insurance Trust Fund and the Federal Supplementary Medical Insurance Trust Fund.  The Trustees report projected a significant increase in Part B premiums for some, and a significant increase in the deductible for all.

Premiums

In part due to increased Part B expenditures (see below), the monthly Part B premium (currently $104.90) was projected to increase to $159.30 in 2016 (a $54, or 52% increase) for approximately 30% of beneficiaries.

  • The 30% of affected individuals are:
    • Those who will be new Medicare enrollees in 2016;
    • Those with income-related premiums (incomes higher than $85,000 for individuals);
    • Those beneficiaries who pay their premiums directly instead of having it deducted from their Social Security checks (or those who don’t collect Social Security, such as certain government employees); and
    • Individuals dually eligible for Medicare and Medicaid (these costs will be paid for by state Medicaid agencies rather than individuals).

Because Social Security announced that there will be no cost of living adjustment (COLA) to Social Security payments next year, the remaining 70% of beneficiaries will be protected by a “hold harmless” provision of the Medicare statute, meaning their premiums will stay at the same rate next year ($104.90).  Because of this provision, higher increased costs would have been borne by the 30% of individuals described above, rather than a lower amount spread across the entire Medicare population.

Note that the Trustees Report also projected a drop in the premium amount for 2017, back down to $120.70 per month.   (This is roughly what the premium increase would have been for everyone in 2016 if the hold harmless provision did not apply.)

The current budget agreement would keep 2016 Part B premiums for those who are not held harmless – roughly 30% of the Medicare population – to approximately $120 per month.   

Those individuals who already pay a higher Part B premium due to their income will pay a proportionately higher amount.

Deductible

Similarly, because the Part B deductible is tied to the premium by statutory formula, the Trustees Report estimated that the deductible will increase from $147 in 2015 to $223 in 2016 (an increase of $76).  There is no “hold harmless” provision that applies to the deductible, so it would apply to all Medicare beneficiaries.  Many Medicare beneficiaries, though, have supplemental or other coverage that includes coverage of the deductible.  However, state Medicaid agencies, employer plans, and certain Medigap plan carriers will pay these increased costs which could, among other things, affect premiums.  Those without any supplemental coverage that covers the Part B deductible would pay the full amount.

Similar to projections relating to premiums, the Trustees Report projected that the deductible will drop in 2017 down to $169.

The current budget agreement would keep the 2016 Part B deductible for everyone to roughly $167 per year. 

Repaying the Loan

In the current budget agreement, the cost of limiting the increases in 2016 will be paid for by a loan of general revenue from the Federal Treasury to the Part B Trust Fund. Medicare beneficiaries will pay back the loan over time from set increases to future premiums.  Starting in 2016, beneficiaries who are not subject to the hold harmless provision – roughly 30% of Medicare beneficiaries – will pay an additional $3 in their monthly Part B premium for a number of years until the loan is repaid.  Starting in 2017 and beyond, all beneficiaries will pay an additional $3 on top of their monthly premium amount, unless they are held harmless under the rules described above.  Higher income individuals who are subject to a higher income-related Part B premium will pay a higher additional amount, but apparently not more than roughly $12 per month.

Underlying Causes of Increase in Part B Expenditures

While the Center has concerns about the way in which the Part B cost-sharing resolution is paid for, we are glad people who rely on Medicare can breathe a bit easier – knowing their premiums and deductible will not skyrocket next year.

We are relieved that Congress seems poised to address next year’s Medicare Part B cost-sharing increases, however the Center also remains concerned about the expenses underlying these increases. We continue to urge law-makers to join Congressman Courtney in asking Secretary Burwell to investigate and fix the underlying reasons for the huge increase in Part B costs.  Much of the increase seems to come from parallel increases in billing inpatient hospital care to Part B through the use of so-called ‘outpatient’ Observation Status.

Conclusion

In the near term, we urge the Senate to pass this budget agreement in order to provide relief for millions of Medicare beneficiaries.  In the longer term, we urge Congress and CMS to address the underlying Part B spending increase that led to these premium and deductible increases in the first place.