Medicare premiums: How much should you pay?

The Medicare Part B monthly premium will be $104.90 in 2013. It really should be $400. The federal government is subsidizing most seniors by paying 75% of the cost of their Medicare Part B. This subsidy is what politicians are talking about when they say there must be changes to Medicare.

Medicare Part A has no premium because it is funded through Medicare payroll taxes collected from current workers and their employers.  Part A covers hospitalization, skilled nursing facility charges, home health care, and hospice.

Medicare Part B covers everything else, including doctor visits, lab tests, physical therapy, chemo and radiation therapy, CT scans, MRIs, and PET scans. Some of these services and tests are very expensive and Part B pays 80% of the bill.

So what is the solution to the growing cost of Medicare? Cut payments to doctors and hospitals? Make seniors pay more of their medical bills? How about charging a higher Medicare premium? $104.50 per month for a person living on $1,500 per month is a lot of money. But what about people who have higher incomes? Should they pay more?

The higher premium solution has not been covered by the press, but it is being discussed behind closed doors.  An article in LifeHealthPro, an insurance industry newsletter, covered some of the proposals that would require more high-income seniors to pay more for their Medicare.

The article points out that Medicare serves about 50 million American seniors and disabled people. Half of all Medicare beneficiaries have annual incomes below $22,500. That’s a bit more than $1,800 per month.  I don’t think those people should have to pay more. But why shouldn’t everyone else?

Here is my idea:

What if everyone earning more than $1,900 per month had to pay 5% of their income for Medicare? The 5% charge would would apply to all income up to $10,000 per month. So a retired sperson with monthly income of $3,000 would pay $150 for their Medicare. Someone with $4,000 in income would pay $200. A person living on $7,000 per month would pay $350, and so on – but only up to $400, or whatever the full Part B premium should be.

Then Medicare should cap everyone’s 20% co-insurance, just like under-65 health insurance plans do.  That maximum-out-of-pocket (MOOP) should be $6,700 each year, just like the MOOP limit for Medicare Advantage plans.

Some people are already paying more.

The LifeHealthPro, article notes that the government is already collecting higher premiums from seniors whose yearly income is more than $85,000 ($170,000 for a couple).  The 75% subsidy is reduced as income goes up (over $85,000). But even people making $214,000 per year  ($428,000 for a couple) are getting a 20% subsidy. Nobody pays more than $400 per month for their Medicare. Even the wealthiest Medicare beneficiaries still get some subsidy – just not a 75% subsidy.

Medicare is a very good deal for retired Americans. In fact, it is too good a deal and we can’t afford it.  The government cannot afford to keep paying 75% of the Part B premium cost. It seems to me that committing 5% of every senior’s income (those who make $1,900 or more) to the Medicare premium would not be a hardship. And if seniors are protected by a MOOP of $6,700, more people would forego Medicare supplements which add to their monthly expense.

I don’t know how my premium proposal would affect the Medicare bottom line, but it would certainly have some positive impact.  Payment changes to doctors and hospitals are already in the works. A combination of changes will strengthen Medicare’s financial situation so the program will be available for many years to come.  Medicare is going to have to cost more in one way or another.

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