Medicare Premiums Will Surge For Some
Capital Gains Can Sharply Raise Part B Payments

By Marc Kaufman
Washington Post Staff Writer
Thursday, December 28, 2006; Page A15
http://www.washingtonpost.com/wp-dyn...122701585.html

When new income-based premiums for Medicare's Part B program go into effect next month, some seniors will get an unwelcome surprise: Their monthly costs will be going up considerably more than expected because of the government's method of counting their income.

In addition to income from investments, pensions and wages, seniors will find that big but unusual windfalls -- from house sales, for instance, or from taking cash from an individual retirement account -- will also be included in government calculations.

As a result, an advocacy group for seniors says, tens of thousands of people will be counted as wealthy even though their continuing yearly income is modest. Some will be paying as much as $800 more a year for Part B coverage because they are deemed to be "higher income beneficiaries." This will be on top of the $93.50 a month standard premium that all recipients will pay.

"We are concerned that our members are just now finding out that the government is suddenly increasing seniors' Part B premiums without adequate warning," Shannon Benton, executive director of the Senior Citizens League, said in a statement.

"Making matters worse, some seniors will have a difficult time with the appeal process, perhaps having to drive hours to appear in person -- an option many seniors simply don't have available to them," she said.

Mark Hinkle, a spokesman for the Social Security Administration, said that a small number of people will indeed have to pay more for their 2007 premiums because of large 2005 capital gains reported on their income tax returns. But he said that the premiums would go down in future years once the capital gains are no longer part of a recipient's tax return.

Congress, he said, listed a number of "life-changing events," such as divorce, death of a spouse or loss of a job, that could reduce a beneficiary's premium. But capital gains from the sale of a house or an IRA payout are not on the list, he said, and so are treated no differently than wages when calculating the premium.

On its Web site, Social Security details how Part B participants can question or challenge their new premium assessments.

Provisions for "means testing" the Medicare Part B program, starting in 2007, were included in the Medicare Prescription Drug Improvement and Modernization Act of 2003. It was a contentious issue then and remains one now -- with some arguing the extra money it will bring in is needed to keep Medicare solvent, while others say it will weaken the program and result in wealthier people opting out. Means testing was included in the bill by a Republican-dominated Senate-House conference committee, although neither body had included the provision in its bill.

The actual determination of a beneficiary's income, and how much people will have to pay in Part B premiums for 2007, is made by the Social Security Administration and based on 2005 income tax returns. Letters from Social Security have been going out to Medicare beneficiaries nationwide this month telling them whether they have to pay additional Part B premiums because of their income.

Medicare's Part B covers doctor and outpatient hospital bills. The program pays about 75 percent of an average beneficiary's costs through taxes, with the remaining quarter paid through monthly premiums.

Under the new, means-tested rules, most recipients will continue to pay 25 percent of the Part B costs through their premiums, while "higher income" beneficiaries will pay progressively, and sometimes dramatically, more over the next three years. The higher-income group is defined as individuals with an income of more than $80,000 and couples with an income of more than $160,000.

The Senior Citizens League, an advocacy group with 1.2 million members, has been getting calls from seniors complaining about their new premiums. One Tennessee member, for instance, told league officials that he sold a second home in Indiana in 2005 and paid taxes on the proceeds. Now he has learned that, based on that capital gain, his Part B premium would increase next year from $93.50 per month to $124.70.