Budget Deal Tackles Disability, Halts Medicare Premium Increase

Agreement calls for lost revenue to be covered by a federal loan from Treasury general funds and paid back over time


By Stephanie Armour, Oct. 27, 2015 2:53 p.m. ET

WASHINGTON—The budget deal hammered out between the White House and congressional leaders Monday would stave off an unprecedented increase in 2016 Medicare premiums for millions of seniors and prevent a Social Security program for the disabled from becoming insolvent next year.

Both are issues that have vexed Congress in recent months. Legislators had wanted to shore up the disability fund before its expected depletion at the end of next year, given the difficulty of addressing entitlements in an election year. The White House achieved its goal of keeping the program solvent and House Republicans won sought-after reforms.

On Medicare, the agreement would resolve a stalemate between Democrats who wanted to limit the increase and Republicans who had balked because there was no resolution on how to pay for doing so.

About 30% of the more than 50 million seniors in Medicare Part B, which covers outpatient visits, were facing a 52% increase in premiums. The deal would prevent that, and instead raise those premiums by 15%. It would also limit an expected increase in deductibles for all enrollees.

Holding off on the increases would cost about $7 billion or more in 2016. To deal with those costs the agreement calls for the lost revenue to be covered by a federal loan from Treasury general funds and paid back over time. Beneficiaries who would have seen the 52% premium hike would pay back the loan through a $3 a month charge, although high earners could pay more.

“The idea is to spread out the cost to avoid the wacky increase in premiums in 2016,� said Tricia Neuman, a senior vice president at the Kaiser Family Foundation.

Those impacted by the premium increase would be new beneficiaries, those with high incomes, and Medicare recipients who don't get Social Security.

The bipartisan package would also extend the solvency of a trust fund that supports Social Security Disability Insurance. It was projected to be depleted in 2016, which would have led to a 20% reduction in benefits for recipients. The tax-funded, federal program supplements income for the disabled.

Employees and employers now each pay a 6.2% payroll tax that funds both the disability insurance trust fund and the much larger retirement-benefits fund, which is currently expected to be depleted in 2034. The agreement would divert a slightly larger share of the payroll tax to the disability fund for three years, providing sufficient funding until 2022.

And in another expected cost savings, doctors would have to review individual's applications for disability applications. Some states currently don't require that oversight.

Democrats hailed the deal as a lifeline to federal health programs.

“We have extended the solvency of Social Security Disability Insurance and protected millions of seniors from a significant increase in their Medicare Part B premiums and deductibles next year,� said House Democratic Leader Nancy Pelosi in a statement Tuesday.

Other Democrats sounded a positive note on the proposal. Rep. Keith Ellison of Minnesota said he had been concerned about the Social Security disability insurance program, but that responses to his questions this morning had “allayed some of my concerns.�

“I'm going to keep studying it but at this point I don't have any fire alarms going off,� he said.

Other health changes are part of the two-year package. The deal would end higher Medicare payments to providers who charge more for services provided on an outpatient basis at hospital-owned practices.

Consumer advocacy groups had complained that patients were being hit with higher bills by hospital-owned practices even though they could get the same procedure done for less at offices owned by doctors. Current hospital-owned practices that bill higher charges would be grandfathered in. Still, the restriction is likely to be opposed by hospital groups.

The developments are likely to set up a “season of potential showdowns that could be risky,� said Rick Pollack, president of the American Hospital Association, in a message cited on the organization's website.

Some of the budget deal would be paid for by extending the Medicare sequester cut for a year and repealing a portion of the 2010 health law that requires large companies to automatically enroll their workers in their employer-provided health plans. That requirement isn't yet in effect.