NCPA - National Center for Policy Analysis

The Case For Raising Medicare Premiums

November 20, 1995

A number of health care reform critics insist that Medicare premiums are far too low and ought to be significantly higher. In fact, taxpayers of modest means are subsidizing the well-to-do elderly under the present system.

At issue is Medicare Part B, which is voluntary and pays for doctors' visits and outpatient services.

  • Originally, Part B premiums covered 50 percent of the program's cost, with taxpayers subsidizing the other half.
  • In 1972, the law was changed to eliminate the 50/50 split and allow premiums to rise only by the rate of increase in Social Security benefits.
  • By 1983, the costs of Medicare were on a rapid rise and premiums covered just 22.6 percent of Part B's costs.
  • At that point the law was again changed to require that premiums cover 25 percent of the cost -- still well below the original 50 percent.
  • In 1990, Congress estimated future Part B premiums based on a 25 percent cost share and set them for five years.
  • Premiums rose from $29.90 in 1991 to $46.10 this year.
  • But Part B costs did not rise as rapidly as expected, so the percentage of total costs covered by premiums rose to 31.5 percent.
  • If, under current law, the premium share goes back down to 25 percent next year, the amount of subsidy required of taxpayers will jump from today's 68.5 percent to 75 percent.

Source: Bruce Bartlett (National Center for Policy Analysis), "Mending Medicare Without Mendacity," Washington Times, November 20, 1995.


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