Medicare: Part B Premiums
Publication Date: September 2004
Publisher: Library of Congress. Congressional Research Service
Author(s):
Research Area: Health
Type:
Abstract:
Medicare is the nation's health insurance program for individuals aged 65 and over and certain disabled persons. Medicare consists of four distinct parts: Part A (Hospital Insurance [HI]); Part B (Supplementary Medical Insurance [SMI]); Part C (Medicare Advantage [MA]); and Part D (the new prescription drug benefit added by the Medicare Prescription Drug and Modernization Act of 2003 [MMA]). The Part A program is financed primarily through payroll taxes levied on current workers and their employers; these are credited to the HI trust fund. The Part B program is financed through a combination of monthly premiums paid by current enrollees and general revenues. Income from these sources is credited to the SMI trust fund. Beneficiaries can choose to receive all their Medicare services through managed care plans under the MA program; payment is made on their behalf in appropriate parts from the HI and SMI trust funds. A separate account in the SMI trust fund will account for the new Part D drug benefit which will be implemented beginning in 2006; Part D will be financed through general revenues and beneficiary premiums.
When Medicare began in 1966, the Part B monthly premium paid by beneficiaries was set at a level to finance 50% of Part B costs; general revenues financed the remainder. Legislation enacted in 1972 limited annual premium increases. As a result, beneficiary contributions dropped to below 25% of program costs by the early 1980s. Since the early 1980s, Congress regularly voted to set Part B premiums at levels to cover 25% of program costs. The Balanced Budget Act of 1997 (BBA 97) permanently set the Part B premium at 25% of program costs. Certain low-income beneficiaries are entitled to assistance in paying their Part B premiums. Beginning in 2007, certain high income Medicare enrollees will pay a higher percentage of their Part B premiums.
The 2004 monthly Part B premium is $66.60; the 2005 premium will be $78.20, a 17.4% increase. The premium increase is attributable to increases in benefit costs as well as increases needed to assure adequate trust fund reserves. This report will be updated when the 2006 premium is announced.