1. High-Income Medicare Recipients to Pay Surcharge By ROBERT PEAR Published: September 12, 2006 http://www.nytimes.com/2006/09/12/washington/13medicarecnd.html?hp&ex=1158120000&en=96ef8e322eed92ab&ei=5094&partner=homepage

2. Medicare B Surcharge WASHINGTON, Sept. 12 — The basic Medicare premium will rise next year to $93.50 per month, an increase of $5 a month, the Bush administration announced Tuesday, but for the first time, higher- income beneficiaries will be required to pay a surcharge. The standard premium is lower than expected. In May and again in July, Medicare officials estimated that it would be about $98 per month in 2007. Dr. Mark B. McClellan, administrator of the federal Centers for Medicare and Medicaid Services, said that Medicare spending for doctors’ services, while still growing at a brisk pace, had increased less than expected.

3. Details The premium in question is for Part B of Medicare, a voluntary program that covers doctors’ services, diagnostic tests and outpatient hospital care for 40 million people who are 65 and older or disabled. It shot up 50 percent from 2003 to 2006, when it reached $88.50 a month. Explaining the increase for 2007, Dr. McClellan reported “a modest slowdown in physician spending growth,” but “very rapid growth in spending for hospital outpatient services.” The surcharge, to be phased in over the three years, is a major change: the first time that high-income beneficiaries will have higher premiums for Medicare coverage. It will ranging from $12.50 to $68.60 a month and is expected to raise $7.7 billion in the first five years and $20.8 billion in the coming decade.

4. Impacts? Federal health officials estimate that 1.5 million people — about 4 percent of those in Part B of Medicare — will have to pay the new surcharge, based on income. Because of the surcharge, officials estimate, 9,000 people will drop out of Part B in 2007, and 30,000 will drop out in 2009. The new surcharge will apply to individuals with incomes of more than $80,000 and married couples filing joint returns with incomes of more than $160,000. In 2007, the surcharge will be $12.50 per month for a single person with income of $80,000 to $100,000, and the same amount for each member of a couple with combined income of $160,000 to $200,000. Their premiums will total $106 per month. The surcharge rises with income. An individual with income greater than $200,000 and each member of a couple with combined income of more than $400,000 will have to pay a surcharge of $68.60 per month, for a total premium of $162.10.

5. Economics Part B Part A is fundamentally hospital care. Part B refers to physicians’ services. It is voluntary, but just about everyone on Medicare uses it.

6. Why? Part A is financed primarily through a mandatory payroll tax (FICA). FICA is 1.45% of earnings by both individual and employer or 2.90% in all. Part B is financed through premium payments AND from the general fund of the U.S. Treasury. Premiums MUST cover 25% of average expenditures. If physician and outpatient expenditures rise, premiums must also rise.