Medicare premiums and deductibles lower than expected for 2012

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Last Updated Oct 31, 2011 1:55 PM EDT

The U.S Department of Health and Human Services announced that premiums for Medicare Part B coverage for physician and outpatient services will increase less than projected next year, and that the deductible will actually decrease. Premiums will go up $3.50, to $99.90 per month for 2012. The Medicare Trustees report had previously projected an increase of $10.20, to $106.60 for 2012.

Premiums have not increased for retirees since 2009, thanks to a "hold-harmless" provision -- since there were no cost of living increases in the Social Security income benefit for 2010 and 2011, Medicare premiums could not rise without effectively reducing seniors' Social Security income. Typically Medicare Part B premiums are deducted from Social Security income checks.

The premium for new retirees in 2011 was $115.40; this group of retirees will now pay the standard premium of $99.90 per month, for a reduction of $15.50 in their monthly premium. New and prior retirees will receive a net increase in their Social Security check, given the recently announced cost-of-living increase (COLA) for 2012 of 3.6 percent. The 2012 COLA will increase Social Security monthly checks by an average of $43 per month, more than offsetting the modest Part B premium increase for prior retirees.

The good news didn't stop there -- the Medicare Part B deductible actually decreased by $22, from $162 last year to $140 for 2012. The deductible for Part A Hospital coverage increased from $1,132 in 2011 to $1,156 in 2012, a lower-than-expected increase, below increases in prior years and below the rate of inflation. This comes on top of news this summer that premiums for Medicare's Part D, the prescription drug program, would decline ever-so slightly this year too.

The HHS announcement credited the Affordable Care Act (a.k.a. Health Care Reform) for the good news, citing crackdowns on Medicare fraud and improvements in the way people receive care.

This good news provides evidence that Medicare's costs can be contained by basic blocking and tackling -- providing incentives for retirees to be healthier and smarter consumers of medical care, rewarding efficient health care providers, and rooting out fraud and abuse. On top of that, if our leaders could add reforms to malpractice laws and give Medicare the ability to negotiate drug prices, and we could really see some progress. Debt super committee -- take notice!

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    Steve Vernon helped large employers design and manage their retirement programs for more than 35 years as a consulting actuary. Now he's a research scholar for the Stanford Center on Longevity, where he helps collect, direct and disseminate research that will improve the financial security of seniors. He's also president of Rest-of-Life Communications, delivers retirement planning workshops and authored Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck and Recession-Proof Your Retirement Years.

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