September 16, 2004 issue of Segal's Capital Checkup

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September 16, 2004

2005 MEDICARE PREMIUMS, DEDUCTIBLES AND COINSURANCE

On September 4, 2004, the Centers for Medicare & Medicaid Services (CMS) announced the following changes to the Medicare premiums, deductibles and coinsurance paid by beneficiaries that become effective on January 1, 2005.¹ The changes are summarized in the chart below:

Cost-Sharing Requirement	2005	2004	Increase
First-Day Part A Hospital Deductible	$912.00	$876.00	4%
Daily Part A Coinsurance for the 61st through 90th Day of a Hospital Stay*	$228.00	$219.00	4%
Daily Part A Coinsurance for Hospital Stays Longer than 90 Days	$456.00	$438.00	4%
Daily Part A Coinsurance for the 21st through 100th Day of a Stay in a Skilled Nursing Facility**	$114.00	$109.50	4%
Monthly Part B*** Premium	$78.20	$66.60	17%


*	There is no cost-sharing requirement for the 2nd through 60th day of a hospital stay.
**	There is no cost-sharing requirement for the 1st through 20th day of stay in a skilled nursing facility.
***	Part B covers physician services, outpatient hospital services, certain home health services, durable medical equipment and other items.

The announcement of the Part B premium increase of 17 percent, the largest since the beginning of the Medicare program, was unusually early. Generally, the announcement is not made until mid-October, when the Social Security cost-of-living increases are announced. A large portion of the Part B monthly premium increase is attributable to increased payments to physicians and Medicare Advantage plans² authorized by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA).³

Previously Announced Increases

The MMA also authorized two other significant changes affecting Part B premiums and deductibles:

Effective January 1, 2005, the Medicare Part B deductible will increase from $100 to $110, and be indexed annually thereafter in the same way as the Part B premium (discussed in the next bullet).
Effective January 1, 2007, Medicare Part B premiums will be adjusted based on the beneficiary's income. Individuals with incomes over $80,000 ($160,000 for couples) will pay a significantly higher portion of the Medicare Part B premium. These increases will be phased in over five years.

Implications for Plan Sponsors

Plan sponsors that pay the Medicare Part B premium or deductible 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" may want to set that payment at a firm amount or maximum.

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 MMA. The Segal Company can be retained to work with plan sponsors and their attorneys on compliance.

¹ To see the press release, click here. (To return to the Capital Checkup text, click here.)
² The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 changed the official name of "Medicare+Choice" plans, which are commonly referred to as "Medicare HMOs," to "Medicare Advantage" plans. (To return to the Capital Checkup text, click here.)
³ MMA is the abbreviation for the law used by the CMS. (To return to the Capital Checkup text, click here.)

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. For back issues of Capital Checkup, click here.