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Medicare Part B Premium Dynamics Explained

The Drug Pricing Lab commissioned Milliman to prepare a report exploring the impact of changes in Medicare Part B program costs on beneficiaries’ premiums and Social Security payments. This report focuses on the 2022 Part B premium for beneficiaries with various income levels to illustrate the payment dynamics and discusses the implications for related programs.
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Originally published on 12/23/2021 in Milliman

Overview of Medicare Part B premiums

Medicare Part B is funded through both tax dollars and beneficiary premiums that are set to 25% of the projected (average per capita) Part B program costs for individuals aged 65 and older. For most beneficiaries, Part B premiums are deducted from Social Security (SS) income. The Part B premium reflects a growing share of SS income. From 1980 to 2022, the Part B premium has increased from approximately 2.8% to 10.4% of the average SS payment amount.

On November 12, 2021, the Centers for Medicare and Medicaid Services (CMS) announced the 2022 Part B premium of $170.10 per member per month (PMPM), a 15% increase from 2021 and the highest dollar change in the history of the Part B program.

This Milliman report explores the impact of changes in Medicare Part B program costs on Medicare Part B beneficiary premiums and Social Security payments. The report focuses on the 2022 Part B premium for beneficiaries with various income levels to illustrate the payment dynamics and discusses the implications for related programs (e.g., Medicare Advantage, Medicare Supplement, Employer Retiree, and Medicaid).

What affects Part B beneficiary premiums?

The Part B premium amount for a particular beneficiary may vary based on several factors, including:

  • Hold Harmless Provision: guarantees the amount of the SS income payment net of Part B premiums is at least as great as the year prior (if the Part B premium is deducted directly from the enrollee’s SS payment). This provision is intended to protect beneficiaries against Part B premium increases that would exceed the SS cost-of-living adjustment (COLA). This may reduce the effective Part B premium paid by certain beneficiaries, while increasing the premium for other beneficiaries not held harmless (to target the same 25% of overall expenses).
  • Income Related Monthly Adjustment Amount: requires beneficiaries with higher income to pay higher Part B premiums. This adjustment reflects a sliding scale to the Part B premium to cover 35-85% of the total Part B program costs.
  • Late Enrollment Penalty: requires beneficiaries who enroll late in Medicare Part B (after 12 months of eligibility) to pay a penalty when they elect to enroll.

In order to maintain that 25% of the total Part B program costs are collected through premiums, there are some scenarios where the premium impact of beneficiaries held harmless could shift to beneficiaries not held harmless. This provision could have a cascading increase on the premiums for beneficiaries not held harmless.

Milliman modeled the Part B premium dynamics of the hold harmless provision for beneficiaries held harmless and those not held harmless. Figure 7 of the Milliman report includes two illustrative scenarios:

  1. 5% of the population is held harmless with a $1 average reduction to their premium
  2. 75% of the population is held harmless with a $5 average reduction to their premium

The premium impact is leveraged as when more beneficiaries are held harmless, there is a smaller population to spread the costs across.

More details on Medicare Part B program costs’ impact, stakeholder considerations, methodology, and limitations can be found here.

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