We’re still in full speculation mode about what deficit-cutting ideas Obama will suggest to the supercommittee (announcement expected Monday, or so I’ve been told). One idea, among others, that has been mentioned is increasing Medicare premiums for higher-income beneficiaries.
Not everyone may know that today some Medicare premiums are tied to income. This is complicated because Medicare is chopped up into parts: Part A (hospital insurance), Part B (physician services), Part D (outpatient prescription drugs). I’m leaving out Part C, which is the program for comprehensive private plans (Medicare Advantage), which bundles Parts A and B and, optionally, D. Here’s how premiums in Parts A, B, and D vary by income today.
Part A: No premium for anyone with 40 or more quarters of qualifying employment or is married to such an individual. Those with fewer than 40 months of qualifying employment can buy in. Details here.
Part B: Means testing of Part B commenced in 2007. The Part B premium varies by income from a low of $96.40 to a high of $369.10 per month (2011 values). Additional assistance paying the premium is available for beneficiaries that qualify for Medicaid or the Medicare Savings Program. Some additional details about the Part B premium apply to Part D as well and are described below.
Part D: The income adjustment to Part D premiums is new as of 2011. It’s a surcharge calculated as a percentage of the national average cost of the standard drug benefit. The surcharge percentages are described in a Kaiser Family Foundation (pdf) document as
the same surcharge percentages (35 percent to 80 percent) and income thresholds ($85,000 for an individual and $170,000 for a couple in 2011) as for Part B. Similar to the Part B premium provision, the income thresholds for the Part D income-related premium are fixed; that is, they are not indexed to increase annually.
In 2011, the dollar amount of that surcharge works out to range from $12 to $69.10 a month. Additionally, there is a Low Income Subsidy program for Part D that pays some or all of the premium and cost sharing for low-income beneficiaries. Details here (pdf).
A relatively simple way to generate additional Medicare revenue would be to adjust either the surcharge percentages (upward) or income thresholds (downward) that apply to Parts B and D. I would not expect any changes to Part A since it is financed by payroll taxes, not premiums and general revenue, as Parts B and D are. I have not heard anyone propose changes to the Part D Low Income Subsidy program or the Part B Medicare Savings Program.