Patricia A. Davis
Specialist in Health Care Financing
Medicare is a federal insurance program that pays for covered health care services of most individuals aged 65 and over and certain disabled persons. In 2013, the program is expected to cover 52 million persons (43 million aged and 9 million disabled) at a total cost of $594 billion. Most individuals (or their spouses) who are 65 and older, and have worked in covered employment and paid Medicare payroll taxes for 40 quarters receive premium-free Medicare Part A (Hospital Insurance). Those entitled to Medicare Part A (regardless of whether they are eligible for premium-free Part A), have the option of enrolling in Part B, which covers such things as physician and outpatient services and medical equipment.
Beneficiaries have a seven-month initial enrollment period, but those who enroll in Part B after their initial enrollment period and/or reenroll after a termination of coverage may be subject to a “delayed enrollment penalty” which is equal to a 10% surcharge for each 12 months of delay in enrollment and/or reenrollment. Under certain conditions, select beneficiaries are exempt from the delayed enrollment penalty; these include working individuals (and their spouses) with group coverage, some military retirees, and some international volunteers.
While Part A is financed primarily by payroll taxes paid by current workers, Part B is financed through a combination of beneficiary premiums and federal general revenues. The standard Part B premiums are set to cover 25% of projected per capita Part B program costs for the aged, with federal general revenues accounting for the remaining amount. In general, if projected Part B costs increase or decrease, the premium rises or falls proportionately.
Most Part B participants must pay monthly premiums, which do not vary with a beneficiary’s age, health status or place of residence. However, since 2007, higher-income enrollees pay higher premiums to cover a higher percentage of Part B costs. Premiums of those receiving benefits through Social Security are deducted from their monthly payments. Additionally, certain lowincome beneficiaries may qualify for Medicare cost-sharing and/or premium assistance from
Medicaid through a Medicare Savings Program. The Social Security Act includes a provision that holds most Social Security beneficiaries harmless for increases in the Medicare Part B premium; affected beneficiaries’ Part B premiums are reduced to ensure that their Social Security checks do not decline from one year to the next.
Each year, the Centers for Medicare & Medicaid Services (CMS) determines the Medicare Part B premiums for the following year. The standard monthly Part B premium for 2013 is $104.90. Higher-income beneficiaries, currently defined as those with incomes over $85,000 a year, or couples with incomes over $170,000 per year, pay $146.90, $209.80, $272.70, or $335.70 per month, depending on their income levels.
The 2014 Part B premiums rates were announced in October 2013. Both the standard and higher income premium amounts will be the same as in 2013. This CRS report will be updated in 2014.
Current issues related to the Part B premium that may come before Congress include the amount of the premium and the rate of increase in recent years (and the potential net impact on Social Security benefits), modifications to the late enrollment penalty, and possible increases in Medicare premiums as a means to reduce federal spending and deficits.
Date of Report: November 6, 2013
Number of Pages: 36
Order Number: R40082
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