Medicare 2008 premium hike low, but doctor pay remains unresolved

Washington -- Medicare premiums for outpatient services next year will rise just 3.1% -- the smallest percentage increase in seven years -- due partly to the fact that physician rates are set to be cut by nearly 10% in January.

The standard Medicare Part B monthly premium will be $96.40 next year, an increase of $2.90 from the current level. Beneficiaries with higher incomes will be required to pay more based on a sliding scale.

The largest chunk of the premium increase is caused by a projected jump in spending on Medicare private health plans. The juxtaposition of physician payment cuts with Medicare Advantage pay increases has physician organizations bristling. They argue that the insurers already are overpaid.

"It is outrageous that all Medicare patients are helping subsidize overpayments to private insurance companies while only one in five Medicare patients participates in a private Medicare plan," said American Medical Association Board of Trustees Chair Edward L. Langston, MD. "Medicare patients' premiums are rising, yet the government is cutting payments to the doctors who care for them, which will make it harder for seniors to see the doctor."

Physician associations, which are pushing hard to have Congress vote to prevent the payment cuts, have recent history on their side.

"Current law requires reductions in physician fees of approximately 10% in 2008 and another 5% per year for approximately 10 more years," the Centers for Medicare & Medicaid Services stated in a fact sheet.

"In each of the last five years, Congress has acted to prevent physician fee reductions from occurring, and there is a strong possibility that this pattern will continue."

Such a move would impact beneficiaries' future premiums. Each year, CMS projects how much the program will spend on outpatient services, including physician fees, in the coming year. The agency then calculates the standard beneficiary premium to cover 25% of that estimated total.

If lawmakers reverse the 9.9% across-the-board physician pay reduction called for by the Medicare formula, the estimate for 2008 outpatient costs would be too low. That, in turn, would mean that the premium would fall short of the level needed to cover its mandatory 25% of outpatient costs.

CMS is bolstering its Part B contingency fund to make sure that it can cover all of its payments for 2008 even if Congress stops next year's physician cut. But beneficiaries still would be responsible via premiums for covering their portion of any extra spending on doctors. Because CMS already has set the 2008 premium, it would need to play catch-up by hiking premiums in 2009 and beyond.

Troubles for seniors

The seniors' group AARP supports reversing the cuts on the grounds that the program must pay fairly to preserve seniors' access to physicians. But it does not want Congress to pass the added costs onto seniors.

"As we work to ensure people in Medicare can continue to see their own doctors, we also must ensure that they can still afford their premiums," said David Sloane, AARP's director of government relations. "Access means little to those who can't afford it."

Some lawmakers support placing a "hold harmless" provision in the yet-to-be-introduced Medicare bill. This would protect seniors from the premium effects of a physician pay boost. But such a move would tack billions of dollars onto the price tag for reversing the physician cuts.

Even though the increase is the lowest in years, the steady climb in Part B premiums is cause for concern among those organizations representing beneficiaries. The monthly charges have nearly doubled since 2001 and are fast approaching the $100 threshold.

"Many people have the mistaken notion that such a low Medicare premium increase is good news for seniors, but they forget that it's been rising five times faster than their Social Security checks," said Shannon Benton, executive director of the Senior Citizens League. "Medical expenses alone are leaving seniors to fend for themselves with all other rising costs."

CMS officials said several factors were behind next year's nearly $3 increase in beneficiaries' monthly premiums. Estimated spending growth on physician-administered drugs, physicians' office laboratory services and ambulatory surgery center services each played a small role, as did growth in the home health and durable medical equipment sectors.

But the largest upward cost driver in the premium calculation by far is increased projected payments to Medicare private plans. CMS expects spending on Medicare Advantage to increase 6.4% next year, while physician spending decreases by a projected 3.2% if the full cut goes through in January.

The AMA, which along with AARP is strongly pushing Congress to equalize per-capita payments between Medicare private plans and the traditional program, said the situation shows that Medicare's priorities are both misplaced and the product of shortsighted government policy.

"By eliminating excess payments to Medicare Advantage plans, Congress can put the savings to good use to stop the next two years of Medicare cuts to doctors and instead update payments to help cover increasing costs, while limiting premium increases for seniors," Dr. Langston said.

Private plans get more

On average, private plans receive higher payments per beneficiary than traditional Medicare because the benchmarks, which are set by law, against which insurers bid are typically higher than fee-for-service levels. Medicare allows plans that bid below the benchmark to receive a portion of the difference in the form of subsidies.

The trade organization America's Health Insurance Plans argues that the federal subsidies to the insurers are necessary because Medicare Advantage plans often serve needy beneficiaries with health conditions that require additional benefits. CMS confirmed that a portion of the increase in next year's premium attributable to private plan spending is a result of the average Medicare Advantage enrollee being sicker today than in the past.

But the inequity between fee-for-service and Medicare Advantage is resonating with lawmakers who are eager to find money in the budget to boost physician pay and limit beneficiary premium increases.

"Increases in Medicare premiums are the result of overpayments to the insurance companies that are trying to privatize Medicare," said House Energy and Commerce Committee Chair John Dingell (D, Mich.). "These increases do not go unnoticed by seniors."

But Republican lawmakers are strongly opposed to cutting Medicare Advantage plans. GOP senators' objections to such a plan in a physician pay and children's health insurance package caused lawmakers to drop all of the Medicare provisions from the bill.