Preliminary estimates suggest that Medicare Part B premiums and deductibles will increase for calendar year 2016. As a result, state Medicaid agencies may see sizeable increases in the Medicare Part B premiums and cost-sharing expenditures they pay on behalf of some dual eligibles. This NPR Marketplace article quotes Milliman's Rob Damler discussing the disproportionate percentage of beneficiaries paying Part B's costs.

Here is an excerpt:

"Two things tend to happen every year. First, Social Security benefits rise. Second, premiums for Medicare Part B -- which covers inpatient treatment, the cost of doctors and certain drugs -- also rise. But what makes this such an unusual year is that Social Security benefits are flat for 2016.

Robert Damler, an actuary with the consultant group Milliman, said that means a bunch of people by law are protected, or held harmless, from paying more for that Part B coverage.

"Seventy percent of the people will have zero percent increase, and then 30 percent of the population will have a 52 percent increase," he said.

Given Medicare Part B enrollment, that's like 15 million people picking up the tab for 50 million. Because many of the people facing increases are low-income, state Medicaid offices cover the premium hikes, which this year total $2.1 billion.

In this article, Damler and I explain the effect that several provisions from the Social Security Act are having on the current situation.

Two related requirements of Section 1839 of the Social Security Act have produced the current situation. In accordance with Section 1839, the revenue generated by Part B premiums is required to be 25% of the total cost of the program, which means that premiums rise and fall with the costs of the program, including normal adjustments for inflation. At the same time, another provision in Section 1839, known as the hold-harmless provision, precludes certain Social Security recipients from being required to pay more in Part B premium increases than their cost-of-living adjustment for that year.

Because the cost-of-living increase this year is expected to be 0%, anyone who pays Part B premiums through a deduction to his/her Social Security benefits must also see a commensurate 0% increase to those premiums. This affects about 70% of Medicare Part B beneficiaries. The remaining 30% are facing an increase in those premiums of 52% this year. This group includes higher income individuals who pay income-related premiums, individuals newly enrolled in Medicare Part B, and dual eligibles. Dual eligibles are not covered by the hold-harmless provision because they do not pay their Medicare Part B premiums through a reduction to their Social Security benefits; the premiums are paid on their behalf by Medicaid agencies.

The estimated higher than normal aggregate premium increase this year (15%) is related in part to passage of the Medicare Access and Children's Health Insurance Program (CHIP) and Reauthorization Act of 2015 (MACRA), which revised some of the terms of Medicare physician reimbursement. In addition, evidence of higher than anticipated Medicare Part B program expenditures in 2014 and an increase in the healthcare cost trends projected by CMS contributed to the estimated increase.

Figure 1 illustrates a high-level estimate of the potential Medicare Part B premium increase that may be incurred by Medicaid programs nationwide. The calendar year 2016 estimated impact was developed from Federal Fiscal Year (FFY) 2013 reported expenditures. Therefore, the estimated increase is relative to a FFY 2013 expenditure basis.