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Increase in Medicare’s Income-Related Premiums Raises Concerns

The House will vote tomorrow on a bill to extend funding for the Children’s Health Insurance Program (CHIP), temporarily increase federal funding for Puerto Rico’s Medicaid program, extend funding for community health centers and several other public health programs for two years, and temporarily avert cuts to Medicaid disproportionate share hospital (DSH) payments. Although the CHIP and other provisions are generally sound, the Puerto Rico funding falls well short of the assistance needed. Moreover, the provisions to offset the cost of the bill raise substantial concerns.

Along with taking away marketplace coverage from hundreds of thousands of people (as we’ve explained) and making other potentially harmful cuts in health programs, the House bill would further increase Medicare premiums on very high-income beneficiaries, potentially undermining the program’s universal nature.

Most beneficiaries’ monthly premiums cover 25 percent of the cost of coverage for Medicare Parts B and D. Higher-income beneficiaries pay more. In 2018, single beneficiaries with incomes over $85,000 and couples with incomes over $170,000 will pay premiums that cover 35 percent to 80 percent of the cost on a sliding scale. Policymakers last raised these income-related premiums in the 2015 Medicare Access and CHIP Reauthorization Act.

The House bill would require single individuals with incomes of $500,000 or more and couples with incomes of $875,000 or more to pay premiums for Parts B and D that cover 100 percent of the cost. Although individuals at these income levels could surely afford higher premiums, requiring them to cover the full cost of Parts B and D could cause some high-income individuals to drop coverage altogether. This would worsen the Medicare risk pool as healthier elderly people who could afford to drop Medicare coverage do so, leaving the pool of covered beneficiaries less healthy on average. The reduced participation by those at the top also would weaken support for Medicare as a universal social insurance program.