By ROBERT PEAR
Published: September 17, 2005
WASHINGTON, Sept. 16 – The Bush administration announced on Friday that the basic Medicare premium would shoot up next year 13 percent, to $88.50 a month, mainly because of the increased use of doctors’ services.
Many beneficiaries will pay an additional premium for the new prescription drug benefit, expected to average $32 a month. So the combined premiums for doctors’ services, outpatient hospital care and prescription drugs will average slightly more than $120 a month.
Medicare provides coverage for 42 million people who are 65 and older or disabled. In most cases, Medicare premiums are deducted from monthly Social Security checks. The average monthly Social Security benefit for retired workers is $955 this year. The amount for 2006 will be announced next month and will probably approach $1,000.
Kirsten A. Sloan, a health policy analyst at AARP, the big lobby for older Americans, noted that the basic Medicare premium was increasing by nearly $30 a month, or 51 percent, from 2003 to 2006.
Doctors are billing Medicare for longer, more intensive office visits, more laboratory tests and more frequent and complex imaging procedures.
But doctors said that much of the increase in Medicare spending also resulted from research breakthroughs, new drugs and technology approved for coverage and cancer and diabetes screenings encouraged by the government.
The 2006 premium will be $10.30 more than the current monthly premium. The premium, now $78.20 a month, is calculated according to a complex formula set by law. The premium was $66.60 in 2004 and $58.70 in 2003.
Herb Kuhn, a senior official at the federal Centers for Medicare and Medicaid Services, expressed concern about the growth in spending on doctors’ services, laboratory tests and outpatient procedures.
“Medicare needs to move away from a system that pays simply for more services, regardless of their quality or impact on beneficiary health,” Mr. Kuhn said. “The current system is not sustainable.”
The Bush administration has endorsed the idea of “pay for performance” and is searching for ways to measure doctors’ performance in treating Medicare patients.
Mr. Kuhn said he did not know how much of the increase in Medicare spending might be for unnecessary care.
“We’re still trying to understand how much value we’re getting for that,” he said.
The chief Medicare actuary, Richard S. Foster, said the premiums paid by beneficiaries covered one-fourth of the cost of benefits under Part B of Medicare. Those benefits include the services of doctors and other health care professionals, X-rays, diagnostic tests, some home health services and drugs given to patients in doctors’ offices.
Grace-Marie Turner, president of the Galen Institute, a research center that advocates free-market health policies, predicted that the premium increase would “create a political firestorm.”
“Some areas of the country are seriously overusing health care,” Mrs. Turner said. “Everyone winds up paying the price for that. What do you do? Put more price controls into the Medicare program? That clearly has not worked. Consumers need more incentives and more power to manage the costs of their care.”
Dr. J. James Rohack, a trustee of the American Medical Association, said doctors were saving money for Medicare by keeping patients out of the hospital. To do that, Dr. Rohack said, physicians have to see patients more frequently to manage aggressively chronic conditions like diabetes and congestive heart failure.
Moreover, Dr. Rohack said, many beneficiaries will have lower out-of-pocket health costs next year because of the added drug coverage.
“Even though the premium for Part B of Medicare is going up, many patients will see net savings of hundreds of dollars a month,” said Dr. Rohack, a cardiologist in Temple, Tex., whose patients often spend $300 to $400 a month on medications.
Ms. Sloan of AARP agreed that “there will be savings from the drug benefit.”
But she added, “Those savings could be eroded by increases in premiums, deductibles and co-payments elsewhere in the Medicare program.”
Under federal law, low-income people are eligible for extra help.
“About one-fourth of beneficiaries can receive assistance that pays for their entire Part B premium,” Mr. Kuhn said.
Many people eligible for the help do not receive it, because they are unaware it exists, are reluctant to apply for it or find applying too difficult.
Beneficiaries have to pay annual deductibles before Medicare pays for doctors’ services. The deductible, $100 a year from 1991 to 2004, increased to $110 this year and will go to $124 in 2006.
Higher Medicare payments to health maintenance organizations and other private plans are also contributing to the higher premiums.
The government often spends more for a beneficiary in a private plan than it would for the same person in traditional fee-for-service Medicare. Federal officials expect that more people will enroll in private plans next year, in part because such plans offer extra benefits, including more generous drug coverage than the standard drug benefit.
Many Democrats object to what they describe as overpayments to private plans. Senator Jeff Bingaman, Democrat of New Mexico, recently introduced a bill that would cut Medicare payments to private plans and use the savings to reduce premiums for beneficiaries.
“With home heating prices expected to rise this winter, many seniors will find it very hard to absorb the higher premium” in 2006, Mr. Bingaman said Friday. “Rather than charging higher premiums, I would like to see deep cuts in the overpayments to H.M.O.’s.”
The new premium was computed on the assumption that current law continues unchanged. Because of a quirk in the law, doctors face a 4.4 percent cut in the Medicare payment next year for each service they provide. Doctors are lobbying Congress to block the cut and to allow a modest increase in the fees. If Congress does so, Medicare spending on doctors’ services will rise more than expected, and that will, in turn, drive up premiums more than expected in future years.