Government

2012 Medicare Part B premium increase only 3.6% after three years. Is there mischief afoot? How realistic are the CMS assumptions?

The Center for Medicare and Medicaid Services (CMS) has announced the 2012 Medicare Part B premium to be $99.90.

Me thinks there is mischief afoot.

While I have no figures to support this, but only forty years of experience developing premiums for employer plans, the Part B premium increase doesn’t add up.  Let’s think about this. A premium is $96.40 in 2009 and $99.90 in 2012. That’s a $3.50 increase or 3.6% (coincidently the same percentage as the increase in Social Security benefits) after three years of health care trend inflation or about 1.2% a year. Does that sound reasonable?  The Part B premium increase is constrained to some extent because the cost increase is spread over all beneficiaries unlike the past several years, bet even so, what’s up?  Keep reading.

On top of that the Part B deductible is decreasing by $22. Why?  The Part A hospital deductible increases slightly to $1156.

In 1967, the first year after Medicare had enrolled beneficiaries, the Part B deductible was $50. If that $50 had kept pace with general (not even medical) inflation, it would be $340 today. However, up until 2005 the deductible was fixed by Congress. Thereafter it is indexed to the increase in Part B costs for beneficiaries, so how does it go down even if there is only a modest increase in beneficiary costs?

According to an article in Kaiser Health News:

Officials attributed the premium surprise to several factors, including lower-than-expected use of medical care and slower cost growth. “Some areas of the program where we’ve had high spikes in the past have been virtually flat in spending growth, so I think today’s announcement just confirms a data trend of much lower utilization and spending growth throughout the Medicare program,” said Jonathan Blum, deputy administrator and director for Medicare at the Centers for Medicare and Medicaid Services.

However, the Medicare Trustees said this in their 2011 annual report released only five months ago in May 2011:

Part B costs, however, have been increasing rapidly, having averaged 6.9 percent annual growth over the last 5 years, and are likely to continue doing so. Under current law, an average annual growth rate of 4.7 percent is projected for the next 5 years. This rate is unrealistically constrained due to a physician fee reduction of over 29 percent that would occur in 2012 under current law. If Congress overrides this reduction, as they have for 2003 through 2011, the Part B growth rate would instead average 7.5 percent.

Kathleen Sebelius

You're doing a heck of a job, but how?

Is CMS now saying the trend in utilization is only about 1.2% a year and is expected to stay that way in the foreseeable future? Apparently they are. And why would you ever decrease a deductible, ever even if you had a good experience year? In this case it’s no doubt some shortsighted provision of the law.

Yet at the same time CMS officials are touting the growing use of “free” preventive services by seniors while Medicare benefits have expanded. In addition, CMS officials say the very modest premium increase assumes that Congress will not, repeat will not allow a nearly 30% cut in physician payment to go into effect in January. And no, this “good news” has nothing to do with health care reform.

Nope, something just doesn’t add up. After three years of growth we see only a 3.6% increase in premiums just five months after the Trustees Report say costs were rising at 6.9% and assuming the cut in physician fees does not take place, will rise at 7.5% in the future.   At the same time CMS says its 3.6% increase for 2012 assumes that the physician cut does not take place.

If you don’t believe the figures, read the statement below.

“Because we’ve kept next year’s premium increase lower than the cost of living adjustment to seniors’ Social Security benefits, the typical retired worker will have nearly $40 more per month in their pocket next year,” said HHS Secretary Kathleen Sebelius.

“Because we’ve kept next year’s premium increase lower…”. It’s the “we’ve kept” you have to worry about.

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Categories: Government, Medicare

5 replies »

  1. Keep up the good work. Some of us older folks who have been on “senior wefare” enjoying the unwarranted payments from Medicare and Social Security look in horror at the bills to be paid by our kids and grandkids. AARP, the largest special interest group in the country, has just sent out a request to contact our representatives to preserve our Social Security and Medicare benfits. It seems as if seniors should not have to share in the effort to reduce our national debt.

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    • I am one of those old folks, but I worry what will happen next year after the election. Sooner or later we will pay.

      Dick

      Richard D Quinn Editor Quinnscommentary.com

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      • Isn’t it curious that CMS can say:

        “today’s announcement just confirms a data trend of much lower utilization and spending growth throughout the Medicare program,” said Jonathan Blum, deputy administrator and director for Medicare at the Centers for Medicare and Medicaid Services.”

        five months after the Trustees say costs have been rising at 6.9% each year for the last five years which includes the entire period since the last premium increase?

        Dick

        Richard D Quinn Editor Quinnscommentary.com

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