Medicare Premium to Increase by 13.5 Percent Next Year

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Medicare Premium to Increase by 13.5 Percent Next Year

By Robert Pear, the New York Times

October 16, 2003

The Medicare premium will shoot up next year to $66.60 a month, an increase of 13.5 percent, or $7.90 a month, the Bush administration said on Wednesday. That is one of the largest increases in the history of the program.

Federal officials said the rise resulted from increases in Medicare spending for doctors' services, outpatient hospital care and medical equipment used at home by beneficiaries. Earlier this year, they noted, Congress increased payments to doctors. The new premium does not include the cost of new prescription drug benefits, which would begin in 2006 under legislation that Congress is working on.

Nor does it reflect a plan to require elderly people with high incomes to pay higher premiums than other beneficiaries. House and Senate negotiators working on the Medicare bill discussed that proposal on Wednesday. A Republican who attended the meeting said he was "surprised to see almost unanimous philosophical support for the idea that we should charge wealthier beneficiaries more."

The basic Medicare premium is updated each year according to a statutory formula. It is set at the level needed to cover about 25 percent of the cost of Part B of Medicare, which helps pay for doctors' services and outpatient care. General tax revenues cover the other 75 percent of Part B costs.

Thomas A. Scully, administrator of the federal Centers for Medicare and Medicaid Services, said the increase in premiums showed that Congress should give private health plans a larger role in Medicare. Through such private plans, he said, beneficiaries "would have access to lower premiums and lower costs."

Democrats disagree. They say private plans often cost more than traditional Medicare.

The monthly Medicare premium started at $3 in 1966, climbed gradually to $7.20 in 1976, was still under $25 in 1988 and reached $50 in 2001. The premium will be 33 percent higher in 2004 than in 2001.

The new premium comes at a time when soaring costs have prompted many employers to scale back or eliminate health benefits for retirees. Congressional negotiators said they expected to provide tax incentives for employees and employers to set aside money for the cost of retiree health benefits.

Lawmakers devised the proposal because they were alarmed at official estimates suggesting that many employers would reduce or eliminate drug benefits for retirees if Medicare covered such costs.

"We want to give employers a tax incentive to set aside money in a separate account for the health costs of retirees," said Senator Charles E. Grassley, Republican of Iowa.

Employers have been lobbying for a similar proposal, which would create tax breaks for "retiree medical benefits accounts," similar to the tax incentives for 401(k) accounts and individual retirement accounts.

"The tax laws encourage people to put money in pension plans, but do not create much of an incentive to set aside money for retiree medical benefits," said Joseph J. Martingale, an expert on health care at Watson Wyatt Worldwide, an employee benefit consulting company.

Paul W. Dennett, vice president of the American Benefits Council, a trade group for employers, said the tax breaks being considered by Congress would be helpful to employees at companies of all sizes.

On another issue, the Medicare conference committee has abandoned an idea championed by conservatives: creation of an agency to manage Medicare drug benefits and to encourage elderly people to enroll in private health plans.

Medicare bills passed by the House and the Senate would have established such an agency, separate from the one that runs Medicare's traditional fee-for-service program.

Republicans and some Democrats have long complained about what they see as heavy-handed regulation of the health care industry by Medicare officials. People who run the traditional Medicare program have often been unsympathetic to competing private plans, the critics say.

Senator John B. Breaux, Democrat of Louisiana, said the conferees had discarded the proposal.

Lawmakers said they had concluded that a new agency would duplicate the existing bureaucracy and would be confusing and disruptive at a time when the government is trying to establish an ambitious new program of drug benefits for the elderly.

Many Democrats have lampooned the idea of a new agency. Senator Hillary Rodham Clinton, Democrat of New York, said it was absurd "to be spending money on bureaucrats and administrators, instead of on drugs for seniors."