Budget Options
November 20, 2014

Mandatory Spending Health Option 75

Function 570 - Medicare

Increase Premiums for Parts B and D of Medicare

CBO periodically issues a compendium of policy options (called Options for Reducing the Deficit) covering a broad range of issues, as well as separate reports that include options for changing federal tax and spending policies in particular areas. This option appears in one of those publications. The options are derived from many sources and reflect a range of possibilities. For each option, CBO presents an estimate of its effects on the budget but makes no recommendations. Inclusion or exclusion of any particular option does not imply an endorsement or rejection by CBO.

Billions of dollars 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2015-2019 2015-2024
Change in Mandatory Outlays                        
  Increase basic premiums 0 -5 -12 -19 -29 -40 -43 -48 -51 -53 -65 -299
  Freeze income thresholds for income-related premiums 0 0 0 0 0 -3 -4 -5 -6 -8 0 -25
  Both of the above policiesa 0 -5 -12 -19 -29 -41 -45 -51 -54 -57 -65 -314

Note: The first and third alternatives would take effect in January 2016; the second alternative would take effect in January 2020. Estimates are relative to CBO’s August 2014 baseline projections.

a. If both policies were enacted together, the total effects would be less than the sum of the effects for each policy because of interactions between the approaches.

All enrollees in Part B of Medicare (which covers physicians’ and other outpatient services) or Part D (which covers prescription drugs) are charged basic premiums for that coverage. Enrollees in Parts B and D who have relatively high income pay a higher premium known as the income-related premium (IRP). The amount of the IRP depends on an enrollee’s modified adjusted gross income, or MAGI (the total of adjusted gross income and tax-exempt interest). The MAGI thresholds established for income-related premiums create four income brackets and premiums that correspond to them. For 2015 through 2019, the income thresholds at which IRPs begin for both Parts B and D are $85,000 for single beneficiaries and $170,000 for married couples who file joint tax returns. Those income thresholds will be increased in 2020 and subsequent years to the levels they would have reached had they been indexed for inflation since 2007.

This option would raise the premiums for Parts B and D of Medicare in various ways (years mentioned in this option are calendar years):

  • The first alternative would increase the basic premiums from 25 percent of Part B costs per enrollee and 25.5 percent of Part D costs per enrollee to 35 percent of both programs’ costs; that increase would occur gradually over a five-year period beginning in 2016. For Part B, the percentage of costs per enrollee covered by the basic premium would rise by 2 percentage points a year through 2020 and then remain at 35 percent. For Part D, that percentage would increase by 1.5 percentage points in the first year and 2 percentage points a year from 2017 through 2020 and then remain at 35 percent.
  • The second alternative would freeze through 2024 all of the income thresholds for income-related premiums.
  • The third alternative would combine the changes in the first two: increasing basic premiums for Parts B and D to 35 percent of costs per enrollee and freezing the income thresholds for income-related premiums.
For additional information including discussion of advantages and disadvantages, see the November 2013 version of this option.