Medicare, Other Health Changes on the Way

The good news is that Medicare premiums are unchanged for 2009. They remain at $96.40 per month for Part B. This is the first year in the last eight the premium will not rise. The program’s reserves increased, allowing it to keep premiums and fees steady.

But do not take that as a sign of things to come. Medicare is in precarious financial shape. AARP calculates that the average 73-year-old Medicare beneficiary had premiums double since joining the program. There were “catch-up” premiums increases the last few years to help the system’s financial condition. Premium increases are likely to continue in 2010 and later years. In addition, higher-income beneficiaries pay higher premiums. The standard rate applies to individuals with income less than $85,000 a year. For 2009, monthly premiums will range from $134.90 for individuals with income of $85,000 to $107,000 to $308.30 for those with income above $213,000.

Other costs of the program continue to rise. For example, the deductible Medicare beneficiaries pay for hospital stays up to 60 days will rise to $1,068 for 2009, from $1,024 for 2008.

Other changes are likely as the cost of the program outpaces its funding and there is pressure to use government revenues for other spending.

The premiums paid by higher income beneficiaries could rise even further or begin at lower income levels. There also might be other forms of means-testing, such as limiting the care covered for higher income beneficiaries. Deductibles and co-payments also might increase based on income. Or for higher income beneficiaries the program might be converted to a major medical plan in which Medicare covers only costs after the first $5,000 or $10,000.

The Medicare Advantage plans also might take a hit. Democrats in Congress have targeted these since returning to the majority after the 2006 election. These plans run by private insurers receive higher reimbursements than other Medicare plans but usually offer greater benefits. Democrats want to eliminate them and bring everyone back into traditional Medicare.

The prescription drug coverage under Medicare Part D also might change. Currently private insurers design and market their own plans and receive reimbursements from Medicare. The government might take a stronger role in the program. It also might decide to “negotiate” medicine prices. This could affect the cost to beneficiaries but also could affect the availability of new medications.

We are a long way from knowing which changes will take place. But current and future retirees need to be prepared for change. The best advice is to ensure that is flexibility in your budget or retirement fund to allow for higher spending on medical care. December 2008.