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Health Department: Medicare Premiums to Drop in 2012

WASHINGTON -- Medicare's basic monthly premium will be much lower than expected next year, the government announced Thursday. That could pay political dividends for President Barack Obama and for Democrats struggling to win over 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 will actually pay less. They have been paying up to $115.40 a month. Instead, they'll also pay $99.90 next year.

The main reason for lower-than-expected premiums has to do with the interaction between Social Security COLAs and Medicare.

But the Obama administration is hoping seniors will get a simple takeaway message: Medicare is under sound management. Older voters went for Republicans in the 2010 elections, after Obama's health care overhaul law cut Medicare spending to help finance coverage for the uninsured. Since then, the administration has doubled down to reverse any perception that Obama is steering Medicare into decline.

The Medicare news means the majority of seniors will have to fork over only a small part of a long-awaited Social Security increase next year for premiums.

Premiums have been frozen at the 2008 level of $96.40 a month for about three-fourths of 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 COLA raise in monthly checks averaging $39 for 2012.

Health and Human Services Secretary Kathleen Sebelius said it's "pretty remarkable" that premiums will stay in check. Seniors have nothing to fear from the health care law, she suggested. "Thanks to the Affordable Care Act, Medicare is providing better benefits at lower cost," said Sebelius.

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 48 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.

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 -- with some exceptions -- 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.

"More people are sharing the smaller-than-expected increase, so that is spread over a larger number of people," said Medicare chief Don Berwick. Administration officials say they've also seen a slow-down in the use of health care services throughout the economy.

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.

The hospital deductible, however, will increase by $24 to $1,156 for those admitted as inpatients. One doesn't cancel out the other since a minority of beneficiaries are hospitalized in any given year.