Medicare Part B premiums will increase 13.2% next year due to rapid growth in physician office visits, lab tests, and outpatient hospital expenses. The average monthly premium will jump $10.30 to $88.50 for Part B, which covers physician charges and some outpatient hospital expenses.
Deductibles will also increase, although CMS is claiming that many beneficiaries will actually see lower total costs due to the implementation of the Part D program that covers prescription drug.
What’s driving these increases?
On the surface, program costs and Medicare regulations. By law, beneficiaries have to pay 25%, with the rest of the costs borne by the taxpayers.
Looking just a bit deeper, utilization is the culprit. Medicare fixes physician prices at the RBRVS-based fee schedule, therefore by definition increases of this magnitude have to be driven by higher usage of services. Physician services were up 6.3% last year, are trending at 5.3% this year, and outpatient hospital increases are similar.
Some physicians have been claiming that the increases are due to higher quality care, better diagnostics, and treatments in an outpatient setting that are cheaper and more efficacious than the “old” inpatient protocols.
Regardless, the net is that taxpayers and beneficiaries are paying more for coverage.
Complicating the matter is the pending 4.3% decrease in the fee schedule slated to go into effect on 1/1/06. If Congress reverses the cut, then 2007 premium and deductible increases will be even higher than projected.
If they don’t, a lot of docs are going to be mighty upset.
What does this mean for you?
If there was ever an example of how price fixing does not manage expense, here it is. No payer does a better job of controlling the price per unit than CMS. And their expenses are still increasing at unsustainable levels.
It’s about utilization.

I have held that reform of the US health care system will not occur until a meaningful number of middle-class voters lose coverage, causing them to focus on health care availability, price, and access. Bob Laszewski of Health Policy and Strategy Associates is of the opinion that large employers will be the force behind any real health care reform.
I have too much respect for Bob to disagree with his views, and in any event it appears both events are now occurring.
California HealthLine reported on last week’s health care summit in Washington DC, where business leaders and elected officials gathered together to decry the cost of health care and access issues, and discuss potential solutions. Not much new here, expect that Starbuck’s, Pitney Bowes, Costco, Honeywell and Verizon were all in attendance along with several senators and governors. It is indeed good news that there is more dialogue, but the key message here is the combined meeting of business leaders and elected officials. While the public musings and declarations are helpful, it is likely that the executives were even more forceful in their private conversations with the politicos.
I can envision a moment before the recorders were turned on when Pitney Bowes (headquartered in Connecticut) execs were telling elected officials about the impact of health care costs on their business call centers, and more specifically about cost-benefit evaluations that indicate off-shoring these functions is starting to look more appealing, in large part due to health care costs.
Verizon and Honeywell’s representatives looked on, nodding in agreement, while the politicians adopted the “deer in the headlights” look associated with fear of lost jobs and votes.
Meanwhile, the number of employers offering health insurance declined from 69% in 2000 to 60% in 2005.
73% of the employers not offering coverage said high insurance costs were very important in their decision to not offer insurance.
Interestingly, only 16% of employers believe consumer-directed health plans (CDHPs) are “very effective” in lowering insurance costs. Even more telling, this was the highest score given to any cost-containment strategy.
Clearly, employers are giving up on health insurance because they can’t afford it, and don’t see any promising approaches on the horizon that will make any appreciable difference.
What does this mean for you?
Large employers, small employers, and employees are all paying a lot of attention to health care coverage and cost. The stars are not yet in alignment, but are certainly moving closer to the point where the momentum behind real health care reform will become irresistible.

Katrina and the federal government’s reaction to same will put Medicaid reform and other health care measures on the back burner for the foreseeable future. And, two of the key Senators on the Senate Finance Committee charged with finding $10 billion in reductions in Medicaid over the next five years have come out against the cuts.
Is an article in California HealthLine, Sen. Gordon Smith (R) was quoted in a letter to the chairman of the committee:
“Smith said, “I do want to reform Medicaid. But this is not the time to take on Medicaid, nor other entitlements for the poor. … To do it now is counterproductive and insensitive.”
In addition, Senate Minority Leader Harry Reid (D-Nev.), House Minority Leader Nancy Pelosi (D-Calif.), Sen. Kent Conrad (D-N.D.) and Rep. John Spratt (D-S.C.) on Wednesday in a separate letter asked Republican leaders to focus on Hurricane Katrina-related legislation instead of the planned agenda. They wrote, “Under the present circumstances, we believe it would be misguided to proceed with fast-track consideration of legislation that would place at risk services to those in need and divert resources that are necessary to fund the federal response to this tragedy.”
Katrina may well impact state Medicaid budgets as well, with the storm’s victims seeking medical care for acute and chronic conditions from the storm.
More to come.

Donna Shalala is an articulate, convincing, intelligent spokesperson for health care reform. She manages to be politely partisan, reflecting her long history as a liberal Democrat, using history to illustrate her perspective on appropriate solutions for the nation’s health care problems. She is also fun; Shalala knows her football, has a great sense of humor, and loves to engage in both.
Such are my views after interviewing the current president of the University of Miami and ex-Secretary of Health and Human Services, sitting with her at a banquet honoring recipients of the Choice Awards for Excellence in Workers Compensation, and listening to her keynote speech at that event.
Without directly endorsing a single payer system, Shalala made a strong argument for single payer national health care, noting that the Federally-run Medicare program’s health care costs are increasing at a rate well under that of private insurance while incurring administrative expenses that are one-third those in the private sector.
As an avowed capitalist, I’m a big believer in the free market, consumer choice, the invisible hand et al. Unfortunately, health care is not a typical economic good, where the buyer selects the product or service by balancing cost and quality/outcome/appeal. This is for a rather simple reason – in health care, the heaviest users of health care services pay little to nothing for the (most) services. The person ordering and/or performing the service, the physician, has no incentive or little interest in considering cost.
The payer, which is the insurer/employer, is a transaction processor/funds transfer agent who is also tasked with “managing” the usage of health care by the recipient that is ordered by the recipient’s physician.
Not a very clean system from an economist’s point of view.
Whether you agree or disagree with Shalala’s politics, her presentation on the history of managed care was compelling. It made it abundantly clear that the free market system is unable to constrain the growth in health care costs.
The follow on to that issue is industrial competitiveness. For companies such as GM, IBM, and CostCo who actually contribute significant sums to pay for their employees’ health insurance (and pay taxes to subsidize Medicaid programs used by other companies who do not provide coverage) health care costs are a major competitive problem. Toyota, Daewoo, Hyundai, VW et al have significantly lower health care costs than GM’s $1500 per vehicle.
So, the “free market” that some are so ardently advocating as the solution to the nation’s ills is actually hurting US employers whose underlying costs are higher than their competitors.
What does this mean for you?
Both Shalala and Bob Laszewski of Health Policy and Strategy Associates have stated that when enough large employers get behind health care reform, it will happen.
That day is fast approaching.