November 2, 2011

2012 Medicare Premiums, Deductibles and Coinsurance

The Centers for Medicare & Medicaid Services (CMS) has announced the changes to the Medicare Part A and Part B premiums, deductibles and coinsurance paid by beneficiaries.1 These changes take effect on
January 1, 2012.

The standard monthly Part B premium and deductible will both decrease by just over 13 percent. This is a dramatic change from between 2010 and 2011 when they both increased by slightly more than 4 percent, and is an even more striking change from between 2009 and 2010 when the increase was 14 percent. However, the 2012 premium will represent an increase for about three-quarters of Medicare beneficiaries, because they paid the same $96.40 premium in 2011 that they paid in 2010 due to the a “hold-harmless provision” in the law.2 Increases in 2012 Social Security benefits, as announced by the Social Security Administration,3 will be large enough, on average, to cover the additional cost.

The Part B dollar amounts are shown in the first two rows of the table below.

The Part A numbers will increase by just over 2 percent. See the last rows in the table below.

The table also shows the base Part D beneficiary premium that CMS announced in August, which will decrease.4

Cost-Sharing Requirement 2011  2012 
Standard Monthly Part B Premium* $115.40 $99.90
Medicare Part B Deductible $162.00 $140.00
Base Part D Beneficiary Premium** $32.34 $31.08
First-Day Part A Hospital Deductible*** $1,132.00 $1,156.00
Daily Part A Coinsurance for the 61st through 90th Day of a Hospital Stay**** $283.00 $289.00
Daily Part A Coinsurance for Hospital Stays Longer than 90 Days $566.00 $578.00
Daily Part A Coinsurance for the 21st through 100th day in a Skilled Nursing Facility $141.50 $144.50
*
Part B covers physician services, outpatient hospital services, certain home health services, durable medical equipment and other items. The monthly Part B premium varies for high-income enrollees, as noted in the chart below.
**
The actual premium paid by a Medicare beneficiary for a Part D Prescription Drug Plan will vary due, in part, to the type of plan he or she selects. Factors could include the amount of the deductible, whether there is coverage in the coverage gap (“donut hole”) and the range of covered drugs in the plan’s formulary. CMS estimates that the average Part D premium for basic coverage will be $30 in 2012. For more information about the “donut hole,” see the chart in Segal’s April 8, 2011 Capital Checkup, “CMS Announces Indexed Medicare Part D Amounts for 2012.”
***
Part A pays for inpatient hospital, skilled nursing facility, hospice and certain home health care services.
****
There is no cost-sharing requirement for the 2nd through 60th day of a hospital stay.

CMS points out that the Part B premium decreases take into account the possibility that Congress will take action to avoid a decrease in physician payments that would otherwise occur because of the physician payment formula. (Congress has taken an action like this every year since 2003.) In the absence of Congressional action, physician fees will be reduced by about 29 percent in 2012.

Higher Part B and Part D Premiums for the Affluent

Since 2007, as required in the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, high-income Medicare-eligible individuals who enroll in the Part B program have been required to pay a monthly Part B premium that is higher than the standard premium. It varies depending upon enrollees’ modified adjusted gross income and income tax filing status. All of the income adjusted Part B premium rates are lower than in 2011. The third column of the table below shows the income-related adjustment to the monthly Part B premium for 2012.

There is also an income-related monthly adjustment for enrollees in Part D prescription drug plans, which started in 2011. The Affordable Care Act5 requires Part D enrollees whose incomes exceed the thresholds established for Part B to pay their regular Part D premium to their plan (that amount will vary based on the plan they choose) and also pay an income-related adjustment to Medicare. The last column of the following table shows the 2012 income-related monthly adjustment amount.

Income Ranges
by Tax Filing Status
  Monthly Adjustment Amount
Individual Return* Joint Return   Part B
Premium
Part D
Premium
$85,001 to
$107,000*
$170,001 to
$214,000
    $40.00       $11.60
$107,001 to
$160,000*
$214,001 to
$320,000
    $99.90       $29.90
$160,001 to
$214,000
$320,001 to
$428,000
  $159.80       $48.10
$214,000 $428,001+   $219.80       $66.40
*
Married beneficiaries with income in 2012 of more than $85,000 and less than or equal to $129,000 who file a separate return from their spouse and lived with their spouse at some time during the taxable year must pay the following monthly premium adjustment in 2012: $159.80. (The Part D monthly adjustment for these couples will be $48.10.) Married beneficiaries with income in 2012 of more than $129,000 who file a separate return from their spouse and lived with their spouse at some time during the taxable year must pay the following monthly premium adjustment in 2012: $219.80. (The Part D monthly adjustment for these couples will be $66.40.)


Implications for Plan Sponsors

Plan sponsors that pay the Medicare Part B premium or deductible or Part D premium should carefully review their plan documents and communications to assure that they are accurately stating the amount that the plan intends to pay. For example, plans that simply promise to pay the “Part B deductible” or the “Part D premium” may want to set that payment at a firm amount or maximum. If the plan is vague regarding the amount that the plan will pay, costs could inadvertently increase when premiums begin to rise again, and could rise substantially in any year if the plan has participants subject to income-based indexing.

• • •

As with all issues involving the interpretation or application of laws, health plan sponsors should rely on their legal counsel for authoritative advice on the integration of Medicare with their health benefit plans. Segal can be retained to work with plan sponsors on their retiree health coverage.

1
The October 27, 2011 CMS press release can be accessed from the press releases section of the CMS website. (Return to the Capital Checkup.)
2
The hold-harmless provision in the Social Security law is designed to protect most beneficiaries from a decrease in Social Security payments that would result where there is an increase in Medicare Part B premiums that exceeds a Social Security cost of living increase. (Return to the Capital Checkup.)
3
See The Segal Company’s November 2011 Bulletin, “For 2012, Increases in Many IRS Dollar Limits, Social Security Benefits and PBGC Guarantee Limit.” (Return to the Capital Checkup.)
4
The base premium was announced on August 3, 2011 in a memo from the Office of the Actuary. (Return to the Capital Checkup.)
5
The Affordable Care Act is the abbreviated name for the new health care reform law, the Patient Protection and Affordable Care Act (PPACA), Public Law No. 111-48, as modified by the subsequently enacted Health Care and Education Reconciliation Act (HCERA), Public Law No. 111-52. (Return to the Capital Checkup.)

Capital Checkup is The Segal Company's periodic electronic newsletter summarizing activity in Washington with respect to health care and related subjects. Capital Checkup is for informational purposes only. It is not intended to provide guidance on current laws or pending legislation. On all issues involving the interpretation or application of laws and regulations, plan sponsors should rely on their attorneys for legal advice.

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