*	Part B covers physician services, outpatient hospital services, certain home health services, durable medical equipment and other items.
**	Part D, which will be available for the first time in 2006, covers prescription drugs.
***	There is no cost-sharing requirement for the 2nd through 60th day of a hospital stay.

The 13 percent increase in the Part B monthly premium and deductible is attributable, in large part to higher payments for physician services, outpatient hospital services, and Medicare Advantage plans.²

Beginning on 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 should prepare for continued changes in Medicare premiums and deductibles, many of which are the result of the Medicare Modernization Act of 2003. The Part B deductible, which had been $100 for several years prior to 2005, is now indexed just like the Part B premium. 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.

Plan sponsors that pay the Part B premium should prepare to address payment issues in 2007 when income-based indexing begins. Higher income employees and retirees will pay a greater share of the Part B premium and plan payments may need to be adjusted accordingly.

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 press release, click here. (To return to the Capital Checkup text, click here.)
2	The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, which CMS refers to as the Medicare Modernization Act (MMA), 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.)