What are the Options For Stopping A Rise In Part B Premiums?

By on October 14, 2015 in Retirement with 40 Comments

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Without immediate action by Congress or the administration, a combination of economics and law may lead to Medicare Part B premiums rising from the current $104.90 to $159.30 monthly for millions of seniors, including most federal retirees covered by Civil Service Retirement System (CSRS).

Medicare trustees feel their hands are tied by rising Part B expenditures, the need to keep the Part B account in financial balance, and their inability to increase the premiums for 70 percent of Part B participants who are protected under the hold-harmless provision of the Social Security Act.

To avoid this result, Sen. Ron Wyden, D-OR, and Rep. Dina Titus, D-NV, have offered legislation in the Senate (S. 2148, the Protecting Medicare Beneficiaries Act of 2015) and the House (H.R. 3696, the Medicare Premium Fairness Act of 2015) to freeze Part B premiums at their current rate for 2016.

The legislation solves one problem by treating all Part B participants equally, but the bills throw the Part B account into fiscal imbalance by not specifying how the trustees should cover the resulting loss in revenue.

“The bills would require a transfer from the general fund to make the Medicare Part B account whole,” according to John Hatton, Deputy Legislative Director for the National Active and Retired Federal Employees Association (NARFE).

This requires either finding revenue from some other source or increasing the federal deficit by the $7.5 billion shortfall caused by freezing premiums at the 2015 level. Given that the current debt ceiling is already a contentious issue, Mr. Hatton believes that some sort of offset would need to be negotiated between Democrats and Republicans.

Rather than looking to outside revenue, one source of funds could be Part B’s own current reserve, which stands at $68.3 billion. Drawing down reserves by nearly 11 percent would leave the account’s balance equal their level at the end of 2008. It is unclear whether this would require legislation or could be accomplished by administrative order and whether drawing down the account’s reserves would be politically acceptable.

Another way to raise revenue is for Congress to override the hold-harmless provision and allow rates to increase for all participants. Trustees have calculated that without the hold-harmless provision, they could balance the account by raising Part B monthly premiums to $120.70 for almost everyone. In this way Social Security recipients and non-recipients are treated equally and the Part B account can be balanced without requiring additional funds from the Treasury or adding to the deficit. Social Security recipients might be incensed by this increase, but it would treat all participants fairly.

If raising rates without an offsetting COLA is politically unacceptable, the administration could consider declaring a special COLA even while overall inflation remains flat. A Social Security COLA would allow Medicare trustees to raise Part B premiums so recipients’ benefits would not be impacted.

Many seniors contend that “their” inflation rate is anything but flat with medical costs rising by 2.4 percent this year. A special COLA in a Presidential election year would be a politically popular move among seniors. It could also be justified as a fiscal stimulus to the overall economy.

Finally, rather than increase revenue, the administration could also keep the Part B account in balance by reducing expenditures to bring them in line with revenue. This could be accomplished by cutting reimbursement rates for doctors and medical suppliers, which would create its own political upheaval with the medical community.

There are no easy solutions. Each of these options cause their own legal, financial, and political problems. Doing nothing will harm one set of seniors, while any action will cause negative consequences to some group. Everything should be on the table for consideration as Congress returns from its recess.

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About the Author

Michael Wald is an independent economics analyst and writer based in the Atlanta area. He specializes in topics related to business, labor, and human resources. Prior to his retirement from the U.S. Department of Labor, he served as the agency’s Southeast Regional Director of Public Affairs and Southeast Regional Economist.