With open enrollment beginning today, people on Medicare need no reminder of the byzantine permutations of picking next year's coverage. This time around, Medicare's quirky funding formula also has created a hefty, inequitable increase in Part B premiums for about 30 percent of beneficiaries. Solving Medicare's long-term financial challenges will be hard enough without undermining the idea that the system is fundamentally fair. As it wrangles over debt ceilings, email servers and crumbling highways, Congress should fix this Medicare anomaly before 2016 rates kick in later this month.
Medicare's monthly Part B premium is designed to cover one-fourth of projected doctor and outpatient costs, with deductibles, co-payments and general revenue paying the remainder. After the standard Part B premium held steady for three years at $104.90, Medicare's trustees have unexpectedly projected a whopping increase for next year.
By coincidence, inflation is so low that people on Social Security cannot expect a cost of living increase next year — which throws Part B financing into a cocked hat. Why? Because most Medicare beneficiaries have their Part B premiums deducted from their Social Security check and are protected by federal law from having a Medicare premium hike that exceeds a cost of living increase. No Social Security COLA increase for 2016 means no Part B premium increase either.
While this "hold harmless" provision protects about 70 percent of Medicare beneficiaries, the remaining 30 percent must shoulder the entire Part B premium increase, which ordinarily would have been spread fairly among all people on Medicare. Unless Congress acts quickly, those unlucky 30 percent will face a 52 percent Part B increase for 2016, running the standard monthly premium up to $159.30. The hold harmless provision does not apply to higher-income Medicare beneficiaries, who already pay more than the standard Part B premium and now face rates up to $500 a month. Also affected are Medicare beneficiaries who do not receive Social Security checks, including public service employees and people delaying retirement, who will now be penalized for continuing to work. State Medicaid programs — which pay Part B premiums for clients — could be on the hook of millions of dollars.
Congressional leaders from both parties, AARP, union lobbyists and others are scrounging for a solution, and well they should. This untimely combination of no COLA and big Part B cost increases is more likely a one-year spike than a long-term trend. Making a person pay $650 more for Medicare Part B just because he or she does not receive a Social Security check is destructive social policy. Medicare's Part B deductible is also scheduled to jump from $147 to $223 for everyone because it is tied to the standard premium.
Estimates for fixing this Part B mess run as high as $7 billion, no small matter when Congress already faces tough budget tradeoffs among taxes, entitlements, defense spending, a highway bill and other pressing needs. A proposal to draw down Medicare's reserves is imprudent unless tied to a broader solution that spreads Part B increases over several years, so all classes of beneficiaries share in the pain. The unlucky 30 percent need not be held harmless for 2016 just because others are. They could still chip in a 16 percent premium increase for 2016, which would have been their share had costs been spread equally.
That would give Congress breathing space toward more permanent Medicare reforms, such as reining in prescription drug costs and making other structural changes to put the program on sounder long-term footing. But Congress does need to act. This is a pocketbook issue and a matter of fundamental fairness and trust.