President’s budget proposal contains some significant Medicare changes. Below are some excerpts regarding these changes, including higher income-related premiums under Medicare Parts B and D, a new Part B premium surcharge for new beneficiaries who purchase first dollar coverage with a Medigap plan, a modified Part B deductible for new beneficiaries, and a home health care co-payment for new beneficiaries.

• Increase Income-Related Premiums Under Medicare Parts B and D (from from the budget for fiscal year 2013,  pages 34-35). Under Medicare Parts B and D, certain beneficiaries pay higher premiums as a result of their higher levels of income. Beginning in 2017, the Administration proposes to increase income-related premiums under Medicare Parts B and D by 15% and maintain the income thresholds associated with income-related premiums until 25% of beneficiaries under Parts B and D are subject to these premiums. This will help improve the financial stability of the Medicare program by reducing the Federal subsidy of Medicare costs for those beneficiaries who can most afford them. This proposal will save approximately $28 billion over 10 years.

• Introduce a Part B Premium Surcharge for New Beneficiaries That Purchase Near First-Dollar Medigap Coverage (from page 35). Medigap policies sold by private insurance companies provide beneficiaries additional support for covering healthcare costs by covering most or all of the cost sharing Medicare requires. This protection, however, gives individuals less incentive to consider the costs of health care services and thus raises Medicare costs and Part B premiums. Of particular concern are Medigap plans that cover substantially all Medicare copayments, including even the modest co-payments for routine care that most beneficiaries can afford to pay out of pocket. To encourage more efficient health care choices, the Administration proposes a Part B premium surcharge equivalent to about 15% of the average Medigap premium (or about 30% of the Part B premium) for new beneficiaries that purchase Medigap policies with particularly low cost-sharing requirements, starting in 2017. Current beneficiaries and near-retirees would not be subject to the surcharge. Other Medigap plans would be exempt from this requirement while still providing beneficiaries options for protection against high out-of-pocket costs. This proposal will save approximately $2.5 billion over 10 years.

• Modify Part B Deductible for New Beneficiaries. Beneficiaries who are enrolled in Medicare Part B are required to pay an annual deductible. This deductible helps to share responsibility for payment of Medicare services between Medicare and beneficiaries. To strengthen program financing and encourage beneficiaries to seek high-value health care services, the Administration proposes to apply a $25 increase in the Part B deductible in 2017, 2019, and 2021 for new beneficiaries. Current beneficiaries or near retirees would not be subject to the revised deductible. This proposal will save approximately $2 billion over 10 years.

• Encourages Beneficiaries to Seek High- Value Services (from page 112). The Budget includes structural changes that will help encourage Medicare beneficiaries to seek high-value health care services. To help improve the financial stability of the Medicare program, the Budget reduces the Federal subsidy of Medicare costs for those beneficiaries who can most afford them, and also introduces a modified Part B deductible for new beneficiaries beginning in 2017. To encourage appropriate use of home health services that are not preceded by inpatient care, new beneficiaries beginning in 2017 would be responsible for a modest co-payment for home health services in certain cases. Research indicates that beneficiaries with Medigap plans that provide first dollar or near-first dollar coverage have less incentive to consider the costs of health care services, thus raising Medicare costs and Part B premiums for all beneficiaries. The Budget applies a premium surcharge for new beneficiaries beginning in 2017 if they choose such Medigap coverage. In addition, it strengthens the Independent Payment Advisory Board to reduce long-term drivers of Medicare cost growth.

• Introduce Home Health Co-payments for New Beneficiaries. Medicare beneficiaries currently do not make co-payments for Medicare home health services. This proposal would create a home health co-payment of $100 per home health episode, applicable for episodes with five or more visits not preceded by a hospital or other inpatient post-acute care stay. This would apply to new beneficiaries beginning in 2017. This proposal is consistent with a MedPAC recommendation to establish a per episode co-payment. MedPAC noted that “beneficiaries without a prior hospitalization account for a rising share of episodes” and that “adding beneficiary cost sharing for home health care could be an additional mea­sure to encourage appropriate use of home health services.” This proposal will save approximately $350 million over 10 years.