print this page

September 21, 2006
(Updated: October 11, 2006)

2007 MEDICARE PREMIUMS, DEDUCTIBLES AND COINSURANCE

The Centers for Medicare & Medicaid Services (CMS) recently announced revised numbers for the higher Part B premiums for high-income Medicare-eligible individuals that will take effect for the first time in 2007. The revised numbers reflect minor adjustments to correct a CMS calculation error.¹

The Medicare Part A and Part B premiums, deductibles and coinsurance paid by beneficiaries that become effective on January 1, 2007,² which CMS announced in September, remain unchanged for those not affected by the higher Part B premiums. The 2007 numbers are summarized in the chart below, which includes the base Part D beneficiary premium, which was announced in August³:

*	Part B covers physician services, outpatient hospital services, certain home health services, durable medical equipment and other items. Starting in 2007, the monthly Part B premium will vary for high-income enrollees, as noted in the chart below.
**	Part D premiums vary, as discussed below.
***	There is no cost-sharing requirement for the 2nd through 60th day of a hospital stay.

The 5.6 percent increase in the standard Medicare Part B monthly premium is significantly lower than the 13 percent increase between 2006 and 2005 and lower than that predicted in the 2006 Medicare Trustees Report. CMS announced that growth in traditional fee-for-service Part B spending — particularly hospital outpatient services, physician-administered drugs, and ambulatory surgical center (ASC) services — is driving increases.

Higher Part B Premiums for the Affluent (Revised)

	Individual Tax Return	Filing Status Joint Tax Return	Part B Premium
	$80,001 to $100,000*	$160,001 to $200,000	$105.80
	$100,001 to $150,000*	$200,001 to $300,000	$124.40
	$150,001 to $200,000	$300,001 to $400,000	$142.90
	>$200,000	>$400,000	$161.40

*	Married beneficiaries with income in 2007 of more than $80,000 and less than or equal to $120,000 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 in 2007: $142.90. Married beneficiaries with income in 2007 of more than $120,000 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 in 2007: $161.40.

The Part B standard monthly premium is set by CMS so that it covers 25 percent of Part B program costs. The new indexing of the Medicare premium based on income will require affluent Medicare beneficiaries to pay more than 25 percent of the Part B program costs. The indexing is based on a sliding scale of premium contribution percentages of 35, 50, 65, or 80 percent depending on income. In addition, the new program is phased in over three years, so beneficiaries are only paying 33 percent of the increase in 2007. In 2008, they will pay approximately two-thirds of the increase, and the changes will be fully phased in by 2009. Moreover, affected beneficiaries will not be eligible for the limitation on Medicare Part B standard monthly premium increase beyond the amount of Social Security cost of living adjustments.

Income from a more recent tax year could be used to determine the Part B premium in certain limited circumstances, such as when a major life event results in a significant reduction in income. This could be the death of a spouse, marriage, divorce, loss of employment, loss of income from income-producing property, or reduction or loss of pension benefits. The change would be retroactive to the beginning of the year in which it is requested. Loss of dividend income or increased expenses are not major life events. In addition, Medicare beneficiaries could submit an amended tax return, and that revised tax return could be used to determine the applicable premium. Beneficiaries would have the right to appeal the determination of the Part B premium within 60 days after the date on which they receive notice of the annual premium rate.

Part D Premiums

CMS announced the Medicare Part D national average monthly bid amount (the amount used to determine how much a private drug plan is paid by Medicare) and base beneficiary premium for 2007. The national average monthly bid is $80.43 and the base beneficiary premium is $27.35. 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 range of covered drugs in the plan’s formulary.

CMS announced that premiums for most plans are expected to be lower in 2007 because of slower than expected prescription drug cost growth, competition among Medicare drug plans, and beneficiary tendency to choose low-cost plans.

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. If the plan is vague regarding defining the Part B premium, costs could inadvertently increase as the Part B premium rises.

Because 2007 will be the first year that income-based indexing begins for the Part B premium, plan sponsors will need to address payment and communications issues. Plan payments may need to be adjusted to take into account the fact that higher income Medicare-eligible employees and retirees will pay a greater share of the Part B premium.

Finally, plan sponsors should monitor the 2006 Part D Prescription Drug Plan and Medicare Advantage markets to determine whether they are viable and represent a possible contracting option for 2007.

        

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 employee benefit plans. The Segal Company can be retained to work with plan sponsors and their attorneys to evaluate the impact of the decision and possible compliance responses.

---

1	To see the CMS announcement, click here. (To return to the Capital Checkup text, click here.)
2	To see the CMS fact sheet, click here. (To return to the Capital Checkup text, click here.)
3	To see the CMS announcement, click here. (To return to the Capital Checkup text, click here.)

Back to Top