Rise in Medicare premiums less than feared in 2012

October 27, 2011 - 11:25 AM

WASHINGTON (AP) — Medicare's basic monthly premium will rise significantly less than expected next year, the government announced Thursday. That could pay political dividends for President Barack Obama and for Democrats struggling for the votes of seniors in a close election.

The new Part B premium for outpatient care will be $99.90 a month for 2012, or about $7 less than projected as recently as May.

The bottom line: most seniors will pay an additional $3.50 a month next year, instead of $10.20, as forecast earlier.

Some younger retirees who enrolled recently have been paying up to $115.40 a month. Instead, they'll get a sizable break next year.

Premiums have been frozen at the 2008 level of $96.40 a month for about three-fourths of Medicare beneficiaries. That was due to the lack of a Social Security cost-of-living adjustment during the depths of the economic downturn. But Social Security recently announced a raise in monthly checks averaging $39 for 2012.

The Medicare news means the majority of seniors will have to fork over only a small part of their long-awaited COLA for premiums.

The reason for the lower-than-expected premiums has to do with the interaction between Social Security COLAs and Medicare premiums. But the Obama administration is hoping seniors will get a simple takeaway message: Medicare is under sound management.

Older voters went decisively for Republicans in the 2010 elections, after Obama's health care overhaul law cut Medicare spending to help finance coverage for uninsured working-age adults and their families.

Since then, the administration has doubled down to try to reverse any perception that Obama is steering Medicare into decline.

Earlier this year, officials had announced that premiums for Medicare's prescription benefit would remain unchanged for 2012, on average. Similarly, average premiums for popular Medicare Advantage plans will dip slightly in 2012. But those announcements do not have as much impact. Averages used by the government don't reflect individual experiences. And fewer beneficiaries are enrolled in either of those two benefits.

The Part B premium is one number that most of the 49 million people on Medicare can connect with.

Upper-income retirees pay more, and premiums for low-income beneficiaries are covered by Medicaid. But middle-class beneficiaries on tight budgets watch the Part B figure.

In a statement accompanying release of the Medicare premiums, Health and Human Services Secretary Kathleen Sebelius asserted that seniors have nothing to fear from the new health care law.

"The Affordable Care Act is helping to keep Medicare strong and affordable," she said. "People with Medicare are seeing higher quality benefits, better health care choices and lower costs."

A leading nonpartisan expert on Medicare said she doubted election-year politics are behind the lower-than-expected premiums for 2012.

"Changes in premiums are obviously important to seniors but the numbers are based on what the law requires, and determined by independent actuaries, rather than politics," said Tricia Neuman of the Kaiser Family Foundation.

Neuman said the explanation is likely due to the complicated relationship between Social Security COLAs and Medicare premiums.

By law, the Part B premium is set to cover 25 percent of the cost of Medicare's outpatient care benefit.

But premiums have been frozen for most beneficiaries in recent years because federal law also says that an individual's Medicare premium cannot go up more than their Social Security COLA.

That left a relatively small share of beneficiaries, including recent enrollees, bearing the brunt of higher Medicare costs. Indeed, the so-called "standard premium" for 2011 rose to $115.40.

Back in May, when government experts originally forecast a premium of $106.60 for 2012, they were also projecting a Social Security COLA of just 0.7 percent. But the final COLA increase turned out to be much bigger, a 3.6 percent raise. And that meant rising Medicare costs could be spread among many more people, resulting in smaller increases for each individual.

"It has been an odd several years because of what has been going on with the COLA," said Neuman. "Not everybody was paying in the standard amount. Because more people are contributing, the effect of that is that the amount should go down."

Indeed, baby boomers who signed up for Medicare this year and were paying $115.40 a month will save $15.50 a month next year, an annual total of $186.

HHS also said the 2012 premium figure takes into account a fix for the biggest problem hanging over Medicare. Unless Congress acts by the end of the year, doctors will be hit with a 30 percent pay cut. But the department said since Congress is almost certain to override that cut, the cost of keeping doctors whole has been factored in to the premium calculations.

Medicare's Part B annual deductible, the amount beneficiaries pay before their coverage begins, will also drop next year to $140, a decrease of $22.

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Associated Press writer Stephen Ohlemacher contributed to this report.