MEDICARE PREMIUMS, DEDUCTIBLES FOR 2011

MEDICARE PREMIUMS, DEDUCTIBLES FOR 2011

The Centers for Medicare and Medicaid Services (CMS) has set the Medicare premiums, deductibles and coinsurance amounts to be paid by Medicare beneficiaries in 2011.

For Medicare Part A, which pays for inpatient hospital, skilled nursing facility, and some home health care, the deductible paid by the beneficiary when admitted as a hospital inpatient will be $1,132 in 2011, an increase of $32 from this year's $1,100 deductible. The Part A deductible is the beneficiary's cost for up to 60 days of Medicare-covered inpatient hospital care in a benefit period. Beneficiaries must pay an additional $283 per day for days 61 through 90 in 2011, and $566 per day for hospital stays beyond the 90th day in a benefit period. For 2010, the per-day payment for days 61 through 90 was $275, and $550 for beyond 90 days. For beneficiaries in skilled nursing facilities, the daily co-insurance for days 21 through 100 in a benefit period will be $141.50 in 2011, compared to $137.50 in 2010. Those who enroll in Medicare Advantage plans may have different cost-sharing arrangements. All of these Part A program payment changes are determined in accordance with a statutory formula.

About 99 percent of Medicare beneficiaries do not pay a premium for Medicare Part A services since they have at least 40 quarters of Medicare-covered employment. However, some enrollees age 65 and over and certain persons with disabilities who have fewer than 30 quarters of coverage obtain Part A coverage by paying a monthly premium established according to a statutory formula. This premium will be $450 for 2011, a decrease of $11 from 2010. Individuals who have between 30 and 39 “quarters of coverage” may buy into Part A at a reduced monthly premium rate of $248 in 2011.

The monthly premium paid by beneficiaries enrolled in Medicare Part B covers a portion of the cost of physicians’ services, outpatient hospital services, certain home health services, durable medical equipment, and other items.  The standard Medicare Part B monthly premium will be $115.40 in 2011, a $4.90 increase (or 4.4-percent) over the 2010 premium.  However, the majority of Medicare beneficiaries will continue to pay the same $96.40 premium amount they have paid since 2008.

Part A premiums are decreasing because spending in 2010 was lower than expected and the Affordable Care Act implemented policies that lower Part A spending due to payment efficiencies and efforts related to waste, fraud and abuse.  Part B premiums are increasing because of growth in the use of services like outpatient hospital care, home health and physician-administered drugs.  In addition, the premium accounts for a likely Congressional action to avert a precipitous decrease in physician  payments, which the Administration supports, and has occurred every year since 2003.  The Administration is committed to permanent reform of the physician payment formula.

By law, the standard premium is set to cover one-fourth of the average cost of Part B services incurred by beneficiaries aged 65 and over, plus a contingency margin. The contingency margin is an amount appropriate to (i) cover incurred-but-unpaid claims costs, (ii) provide for possible variation between actual and projected costs, and (iii) amortize any surplus assets or unfunded liabilities.  The remaining Part B costs are financed by Federal general revenues.  (In 2011, $2.5 billion in Part B expenditures will be financed by the new fees on manufacturers and importers of brand-name prescription drugs under the Affordable Care Act.  The revenue from these fees reduces the standard Part B premium by $0.90.)

Based on current estimates, Part B assets are not sufficient to cover the amount of incurred-but-unpaid expenses and to provide for a significant degree of variation between actual and projected costs.  Thus, a large positive contingency margin is needed to increase assets to a more appropriate level.

The size of the contingency margin for 2011 is affected by two additional factors.  First, the current law formula for physician fees will result in a payment reduction of 23 percent in December 2010 and, in this analysis, is projected to cause an additional reduction of about 6.5 percent starting January 2011.  (The actual reduction in physician fees under current law for January 2011 is now known to be 2.5 percent.  As is typical, the final adjustment was not available in time to include in the premium determination.)   There is a strong likelihood that these reductions will be overridden by legislation enacted after Part B premiums are established for 2011.  For each year from 2003 through November 2010, Congress has acted to prevent smaller physician fee reductions from occurring.

In recognition of this strong possibility of higher Part B expenditures resulting from similar legislation to override the decreases in physician fees in December 2010 and January 2011, it is appropriate to maintain a significantly larger Part B contingency reserve than would otherwise be necessary.  The asset level projected for the end of 2010 would otherwise not be adequate to accommodate this contingency. 

Second, for most Part B beneficiaries a “hold-harmless” provision prevents their net Social Security benefit from decreasing as a result of an increase in the Part B premium. There was no increase in Social Security benefits for 2010, and, as a result of slow growth in the CPI, this result will occur again for 2011. Consequently, the increase in the Part B premium for 2011 will be paid by only a small percentage of Part B enrollees. Approximately 27 percent of beneficiaries are not protected by the hold-harmless provision because they are subject to the income-related additional premium amount (5 percent), they are new enrollees during the year (3 percent), or they do not have their Part B premiums withheld from Social Security benefit payments (19 percent, 17 percentage points of whom qualify for both Medicare and Medicaid and have their Part B premiums paid by Medicaid).

Although Part B premiums will remain flat in 2011 for the great majority of beneficiaries, program costs will still increase significantly.  In order for Part B to be adequately funded in 2011, the 2011 contingency margin has been increased to account for this situation. However, this adjustment results in a larger-than-usual premium paid by or on behalf of a minority of Part B enrollees.  No other means is available under current law to prevent a substantial decrease in account assets, which would jeopardize the ability to pay Part B benefits.

As required in the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, beginning in 2007 the Part B premium a beneficiary pays each month is based on his or her annual income.  Specifically, if a beneficiary’s “modified adjusted gross income” is greater than the legislated threshold amounts ($85,000 in 2011 for a beneficiary filing an individual income tax return or married and filing a separate return, and $170,000 for a beneficiary filing a joint tax return) the beneficiary is responsible for a larger portion of the estimated total cost of Part B benefit coverage.  In addition to the standard 25 percent premium, affected beneficiaries must pay an income-related monthly adjustment amount.  About 5 percent of current Part B enrollees are expected to be subject to the higher premium amounts.

The 2011 Part B monthly premium rates to be paid by beneficiaries who file an individual tax return (including those who are single, head of household, qualifying widow(er) with dependent child, or married filing separately who lived apart from their spouse for the entire taxable year), or who file a joint tax return are shown in the following table:

In addition, the monthly premium rates to be paid by beneficiaries who are married, but file a separate return from their spouse and lived with their spouse at any time during the taxable year are as follows:

As a result of the Medicare Modernization Act, the Part B deductible was increased to $110 in 2005 and is indexed by the annual percentage increase in the Part B actuarial rate for aged beneficiaries.  In 2011, the Part B deductible will be $162.  (The actuarial rate is set by law at one-half of the total estimated per-enrollee cost of Part B benefits and administrative expenses, adjusted as necessary to maintain an adequate contingency reserve.)

Enrollees in Medicare Part D prescription drug plans pay premiums that vary from plan to plan depending on each plan’s efficiency and scope of benefits.  Beginning in 2011, the Affordable Care Act requires Part D enrollees whose incomes exceed the same thresholds that apply to higher income Part B enrollees to pay a monthly adjustment amount.  These enrollees will pay the regular plan premium to their Part D plan and will pay the income-related adjustment to Medicare. The 2011 Part D income-related monthly adjustment amounts to be paid by beneficiaries who file an individual tax return (including those who are single, head of household, qualifying widow(er) with dependent child, or married filing separately who lived apart from their spouse for the entire taxable year), or who file a joint tax return are shown in the following table:

In addition, the income-related monthly adjustment amounts to be paid by Part D beneficiaries who are married, but file a separate return from their spouse and lived with their spouse at any time during the taxable year are as follows:

As noted above, states have programs that pay some or all of beneficiaries' Part A and Part B premiums and coinsurance for certain people who have Medicare and a limited income. Similarly, Part D beneficiaries with limited income and assets are eligible for Federal subsidies to reduce their premiums and coinsurance.  Information is available at 1-800-MEDICARE (1-800-633-4227) and, for hearing and speech impaired, at TTY/TDD: 1-877-486-2048.