San Antonio Express-News
January 6, 2004

The Part B Premium Surtax

copyright 2004, Paul Premack

You will recall that Medicare Part A (to cover hospitalization) and Part B (to cover physician bills) have been around for many years. Part A is automatic and does not cost extra, but Part B is voluntary and has a monthly premium. In 2003, $58.70 was taken from your monthly social security check for Part B, and in 2004 that has bumped up to $66.60 per month.

Under MPDIMA, the Part B premium will also be increased starting in 2007 for higher-income individuals. Specifically, those with annual incomes between $80-$100,000 have an "applicable percentage" of 35%, those with income between $100-$150,000 have an "applicable percentage" of 50%, those whose income is $150-$200,000 have an "applicable percentage" of 65%, and those with income above $200,000 have an "applicable percentage" of 80%. The people who have paid the most in taxes through the years are the ones who will pay more for this program.

To complicate matters, the "income" figure is not taken directly from your tax return; rather, it is adjusted by deducting any income you earn while residing in a variety of American Territories (like Puerto Rico) and by deducting income eared on education savings bonds. Then income is increased by adding in any tax-free interest earned or accrued (which should include IRA, 401k and tax-free bonds).

The "applicable percentage" does not translate directly to the actual premium increase. The law provides a formula to calculate actual out-of-pocket costs. First, you take the applicable percentage rate and reduce it by 25 points. Second, multiply that by twice the regular premium rate. Finally, the law phases in the premium increase over a five-year period. In 2007, a person pays only 20% of the full increase but it ramps up to 100% by 2011.

Here's an illustration: A single individual has adjusted income of $110,000. Assume that the regular Part B premium will go up $8 per year, reaching $90.60 in 2007. This person would pay $99.66 that year (10% extra). When the full increase hits in 2011, she’d pay $183.90 per month (50% more than the regular $122.60 premium).

In fact, the complex Part B premium calculations called for in the law could have been expressed very simply. The law could have said that those with income from $80-$100,000 have a 20% increase, those with $100-$150,000 go up 50%, those with $150-$200,000 go up 80%, and those with $200,000+ go up 110%. Take a look at the Premium Calculator on at www.Premack.com to see the rest of the figures.

If the increases can be expressed simply, why didn’t Congress do it that way? Perhaps making it too accessible would have been a political negative ("Hey, seniors! We're actually increasing your costs by 50%"). Though not technically "tax increases" – they are more like the "users fees" the state uses to avoid increasing taxes – the premium increases do represent new costs to be paid by many Seniors. The Congressional Budget office estimates that the Part B increase will raise $13.3 billion by 2013.