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.

The  never-ending discussions on reducing government spending are targeting Medicare. Seniors must pay more for their medical care, or they will use the health care system too much. Several plans have been proposed to force seniors to pay more and rely less on Medicare supplement insurance (a.k.a. “Medigap”).

About 50% of people on Medicare have some form of Medicare supplement insurance, through an employer retirement plan (31%) or an individual Medicare supplement policy (19%).  Another 21% of Medicare beneficiaries are enrolled in Medicare Advantage. These figures are based on 2008 data from Medicare.

Medicare supplement policies fill the gaps in Medicare and pay some or all of the co-insurance and deductibles that are built into Medicare.  The most popular Medigap plans are plan F, which fills all the gaps, and Plan C, which covers everything but the excess charges.  So seniors with these plans pay their monthly Medicare premium and their Medigap premium, and don’t have to worry about medical bills when they get sick.  New rules being proposed for Medigap plans would not allow this kind of  “first dollar coverage”.

Apparently, some actuary has determined that seniors should expect to pay out between $3,000 and $5,000 per year in medical costs.  So they should not be allowed to protect themselves from those costs with insurance. For example, a person who pays $150 per month for a Plan F Medigap can figure that $150 x 12 months = $1,800 per year to cover their medical expenses. This is a lot less than $4,000 or $5,000 that is part of several proposals being considered in Washington.

As an insurance agent, I recommend a Plan F Medigap, but I guess I am part of the Medicare budget-busting problem.  Some of my clients live in gated communities and can certainly afford their Medigap premium, or an extra $5,000 each year for medical expenses.  But most of my Medigap clients  live very modestly, and I don’t know if they can afford to put out $5,000 every year for medical bills.

I recently read that about half of Americans who are over 65 have less than $50,000 in savings.  The millionaires who serve in Congress think these seniors with very limited savings will be able to find extra money for their medical care. I guess they should know.  These ideas on deductibles and higher co-pays slowing down the use of the health care system are straight from the for-profit insurance industry. It is called “consumer-driven heath care”. What it means is that the government doesn’t ration the care people get – seniors will ration their own care based on how much they are willing or able to pay. What a system!

An article in the Los Angeles Times looks at the question of making changes to Medicare that would require seniors to pay more of their medical costs. The article, “Raising Medicare Costs May Be Gaining Traction”, quotes various experts who study Medicare, and they answered my questions from yesterday’s blog post.

Yesterday I posed the following questions:

What are the chances a senior will put off care because he has to pay 100% of the cost until he meets his deductible?

Is it a good idea for seniors to put off care because they can’t afford it – or are too cheap to pay co-pays and deductibles?

Is this good public health policy, or will it lead to sicker seniors and bigger medical bills for seniors and Medicare?

Experts who were interviewed for the LA Times article provided the following comments:

[Tricia Neuman, director of the Medicare Policy Project at the Kaiser Family Foundation] and others also warn that increasing co-pays and deductibles may discourage seniors from seeking medical care they need.

Brown University researchers, for example, found that seniors went to the doctor less frequently after their Medicare-managed plans raised co-pays for outpatient visits. At the same time, they ended up spending more time in the hospital.

Because hospital care is so much more expensive, that probably ended up costing Medicare more than the program saved by paying for fewer doctor visits, while also leaving seniors sicker, said Dr. Amal Trivedi, the lead author of the study.