Medicare Part D Premiums May Be Tied to Income

Premiums for prescription drug coverage under Medicare Part D would increase for Medicare beneficiaries who are more affluent, under legislation proposed by President George Bush.

The president acted in response to warnings from Medicare trustees that by 2013 more than 45 percent of Medicare's spending will come from general tax revenue, as opposed to dedicated payroll taxes and premiums paid by beneficiaries.

Under a 2003 law, the White House must respond with legislation when trustees issue that warning for two consecutive years. The first such warning was announced in 2006, the second in April 2007.

According to the proposal, federal subsidies for single beneficiaries with incomes greater than $82,000 and married beneficiaries with incomes greater than $164,000 would be reduced and premiums increased for the purchase of prescription drug coverage under Part D. Also included are proposals to increase cost efficiency through improved health information technology and performance reporting; incentives for providers to deliver, and beneficiaries to choose, high-quality, low-cost health care; and transparency of pricing and quality information

In a letter to House Speaker Nancy Pelosi (D-Calif.), Health and Human Services Secretary Mike Leavitt outlined the legislaton.

“The Medicare program is on an unsustainable path, driven by two principal factors: projected growth in its per-capita costs and increases in the beneficiary population as a result of population aging,” Leavitt wrote. “Excess cost growth will not be brought under control until there is comprehensive reform changing Medicare's underlying structure. The funding warning is merely one near-term signal illuminating a small piece of a much larger problem.

“That problem is an unsustainable design in which government controls too many aspects of health care. In traditional fee-for-service Medicare, the government decides what treatments are provided and what the price should be. Until this system is modernized to offer greater choice and price accountability to individual consumers, the program's finances will remain on a path to insolvency.”

“Left unchanged, within 35 years Medicare would eat up every bit of the federal budget as we now know it,” Leavitt said in a conference call with reporters. “We know that's not likely to happen, so one of two things will occur: we'll either raise taxes in some future Congress or... have to do serious surgery to Medicare.... We're quickly moving away from the point that we can solve this problem. We need to act on it.”

Leavitt said the proposal to relate Part D premiums to income would save $900 million in 2013 and nearly $3.2 billion over five years.

Other provisions are designed to reduce costs to Medicare associated with medical liability suits. Among the strategies to accomplish this is the establishment of a statute of limitations of three years after the date of manifestation of injury or one year after the claimant discovers the injury, whichever comes first; and a provision that lawsuits on behalf of minors under age 6 must be commenced within three years of the manifestation of the injury or prior to their eighth birthday, whichever provides the longer period.

The provisions related to income were included as part of Bush's budget package released earlier this year.

“This legislative package, particularly if enacted in concert with the president's budget, would take the first step of responding to the funding warning in the Trustees' 2007 report,” Leavitt wrote to Pelosi.“ Perhaps more importantly, it would begin to address the long-term challenge and lay the foundation for the comprehensive Medicare reforms that are necessary to strengthen and improve the program for future generations.”

Leavitt's letter is posted at<www.hhs.gov/asl/medicarefundingwarningtransmittal.html>, and the text of the proposed legislation is posted at<www.hhs.gov/asl/medicarefundingwarninglegislation.pdf>.▪