The Centers for Medicare and Medicaid Services (CMS) has set the Medicare premiums, deductibles and coinsurance amounts to be paid by Medicare beneficiaries in 2011.
For Medicare Part A, which pays for inpatient hospital, skilled nursing facility, and some home health care, the deductible paid by the beneficiary when admitted as a hospital inpatient will be $1,132 in 2011, an increase of $32 from this year’s $1,100 deductible. The Part A deductible is the beneficiary’s cost for up to 60 days of Medicare-covered inpatient hospital care in a benefit period. Beneficiaries must pay an additional $283 per day for days 61 through 90 in 2011, and $566 per day for hospital stays beyond the 90th day in a benefit period. For 2010, the per-day payment for days 61 through 90 was $275, and $550 for beyond 90 days. For beneficiaries in skilled nursing facilities, the daily co-insurance for days 21 through 100 in a benefit period will be $141.50 in 2011, compared to $137.50 in 2010. Those who enroll in Medicare Advantage plans may have different cost-sharing arrangements. All of these Part A program payment changes are determined in accordance with a statutory formula.
About 99 percent of Medicare beneficiaries do not pay a premium for Medicare Part A services since they have at least 40 quarters of Medicare-covered employment. However, some enrollees age 65 and over and certain persons with disabilities who have fewer than 30 quarters of coverage obtain Part A coverage by paying a monthly premium established according to a statutory formula. This premium will be $450 for 2011, a decrease of $11 from 2010. Individuals who have between 30 and 39 “quarters of coverage” may buy into Part A at a reduced monthly premium rate of $248 in 2011.
The monthly premium paid by beneficiaries enrolled in Medicare Part B covers a portion of the cost of physicians’ services, outpatient hospital services, certain home health services, durable medical equipment, and other items.  The standard Medicare Part B monthly premium will be $115.40 in 2011, a $4.90 increase (or 4.4-percent) over the 2010 premium.  However, the majority of Medicare beneficiaries will continue to pay the same $96.40 premium amount they have paid since 2008.
Part A premiums are decreasing because spending in 2010 was lower than expected and the Affordable Care Act implemented policies that lower Part A spending due to payment efficiencies and efforts related to waste, fraud and abuse.  Part B premiums are increasing because of growth in the use of services like outpatient hospital care, home health and physician-administered drugs.  In addition, the premium accounts for a likely Congressional action to avert a precipitous decrease in physician  payments, which the Administration supports, and has occurred every year since 2003.  The Administration is committed to permanent reform of the physician payment formula.
By law, the standard premium is set to cover one-fourth of the average cost of Part B services incurred by beneficiaries aged 65 and over, plus a contingency margin. The contingency margin is an amount appropriate to (i) cover incurred-but-unpaid claims costs, (ii) provide for possible variation between actual and projected costs, and (iii) amortize any surplus assets or unfunded liabilities.  The remaining Part B costs are financed by Federal general revenues.  (In 2011, $2.5 billion in Part B expenditures will be financed by the new fees on manufacturers and importers of brand-name prescription drugs under the Affordable Care Act.  The revenue from these fees reduces the standard Part B premium by $0.90.)
Based on current estimates, Part B assets are not sufficient to cover the amount of incurred-but-unpaid expenses and to provide for a significant degree of variation between actual and projected costs.  Thus, a large positive contingency margin is needed to increase assets to a more appropriate level.
The size of the contingency margin for 2011 is affected by two additional factors.  First, the current law formula for physician fees will result in a payment reduction of 23 percent in December 2010 and, in this analysis, is projected to cause an additional reduction of about 6.5 percent starting January 2011.  (The actual reduction in physician fees under current law for January 2011 is now known to be 2.5 percent.  As is typical, the final adjustment was not available in time to include in the premium determination.)   There is a strong likelihood that these reductions will be overridden by legislation enacted after Part B premiums are established for 2011.  For each year from 2003 through November 2010, Congress has acted to prevent smaller physician fee reductions from occurring.

 In recognition of this strong possibility of higher Part B expenditures resulting from similar legislation to override the decreases in physician fees in December 2010 and January 2011, it is appropriate to maintain a significantly larger Part B contingency reserve than would otherwise be necessary.  The asset level projected for the end of 2010 would otherwise not be adequate to accommodate this contingency.