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Higher Medicare Premiums for Higher-Income Seniors

September 11, 2006 Seniors with higher incomes will be taking a shot in the wallet when they get their 2007 Medicare premium notices this fall. It's a major departure from the traditional arrangement under which seniors have generally paid the same premium.

The premiums for physician visits and outpatient services will be tied to beneficiaries' incomes for the first time in the program's 41-year history. The higher someone's income, the bigger the premium will be.

Monthly premiums for the so-called Medicare Part B are projected to increase to at least $98.40 in January from $88.50 to cover Medicare's steadily growing costs, but the increase will be larger for individuals with annual incomes above $80,000 and for couples with incomes over $160,000.

The surcharge is expected to affect one million to two million beneficiaries. It was established under a little-noticed provision of the 2003 law that added a prescription drug benefit to Medicare.

Supporters of the surcharge say it makes sense for wealthy people to pay more at a time when Medicare costs are soaring. But some Medicare experts worry that wealthy retirees will abandon the program and rely on private insurance instead, leaving only poorer, sicker people in Medicare.

Meanwhile, the Bush administration is proposing to cut by 5.1 percent the amount doctors are reimbursed for treating Medicare patients. This wouldn't be the first time fees were reduced, but with each cut, it becomes more likely that doctors will simply turn Medicare patients away.

The "means testing" will be phased in over three years.

Depending on their income, affluent seniors will pay from $111.50 to $170.60 per month the first year, according to estimates by the Senior Citizens League; by 2009, they'll pay from $172.80 to $395 per month.

At the end of the phase-in, the wealthiest will pay more than triple what middle-income seniors will.

Means testing will affect about 1.2 million of Part B's 40 million beneficiaries in 2007 and 2.8 million by 2013, according to the Congressional Budget Office.

It's projected to save taxpayers $13 billion over 10 years, or about three-tenths of 1 percent of Medicare's budget.

Matt Moore, a senior policy analyst with the National Center for Policy Analysis in Dallas, agrees with the need for a fundamental reform of Medicare.

"We have a crisis of entitlements on our hands," he said. "We've been talking about Social Security, but we also need to have a national discussion about Medicare and how we're going to pay its long-term costs."

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