This web site was copied prior to January 20, 2005. It is now a Federal record managed by the National Archives and Records Administration. External links, forms, and search boxes may not function within this collection. Learn more.   [hide]

Department of Health and Human Services
HHS Logo Bottom
HHS Yellow Bar

News Release

Friday, September 3, 2004

Contact: CMS Public Affairs Office
(202) 690-6145

HHS Announces Medicare Premium, Deductibles for 2005

The Department of Health and Human Services (HHS) today announced the Medicare premium, deductible and coinsurance amounts to be paid by Medicare beneficiaries in 2005. The new premiums, approximately the same as the actuarial forecast published in March for the Medicare Trustees Report, reflect general growth in health care costs, higher payments to physicians and Medicare Advantage coordinated care health plans under the Medicare Modernization Act (MMA), and building trust fund reserves.

Under the MMA, Medicare enrollees are benefiting from improved access to physician services, new preventive and health screening benefits, more Medicare Advantage plan choices, and better benefits and/or lower out-of-pocket costs in many Medicare Advantage plans.

The monthly premium paid by beneficiaries enrolled in Medicare Part B, which covers physician services, outpatient hospital services, certain home health services, durable medical equipment and other items, will be $78.20, an increase of $11.60 over the $66.60 premium in 2004.

"The new premiums reflect an enhanced Medicare that is providing seniors and people with disabilities with strengthened access to physician services and new preventive benefits, such as the new 'Welcome to Medicare' physical and screening exams, as well as improved Medicare Advantage plan choices that reduce beneficiaries' health care costs," said CMS Administrator Mark B. McClellan, M.D., Ph.D.

Medicare deductibles and premiums are updated annually in accordance with formulas set by law. By law, the federal government picks up about 75 percent of the cost of Part B benefits and the Part B premium covers the remaining 25 percent. About three-fourths of the 2005 increase is due to additional costs for Part B, and almost one-fourth for building reserves.

The principal contributing factor to the increased cost of Medicare Part B benefits, accounting for about four-fifths of the higher benefit costs, is higher payments in Medicare's traditional plan. Most importantly, the recent Medicare law prevented physician payments from falling significantly. In 2005, payment rates for physicians will increase by 1.5 percent, preventing a 4.5 percent reduction that could have threatened access to high-quality physician services.

Another contributing factor to higher benefit costs is improvement in the Medicare Advantage program under the MMA. As a result, many beneficiaries enrolled in Medicare Advantage health plans are expected to receive additional benefits including prescription drugs, more preventive care, and even dental and vision care, as well as lower copayments that enable them to reduce their out of pocket costs.

On average, the premium changes related to Medicare Advantage are more than offset by reductions in out-of-pocket payments for Medicare Advantage enrollees. Prior to these benefit improvements, beneficiary out-of-pocket costs were already lower than in traditional Medicare. In 2003, beneficiaries without supplemental coverage from employers or Medicaid who enrolled in Medicare Advantage plans had average out-of-pocket payments that were approximately $700 lower.

A third contributing factor is increasing the reserves held in the Part B account of the Medicare Supplementary Medical Insurance Trust Fund toward a more adequate level. The Medicare law requires adjustments in contributions from general revenues and premium payments in order to maintain financial balance in the Part B account.

Two other MMA changes will help lower beneficiaries' out-of-pocket costs in 2005. First, the new Medicare law provides additional savings for Medicare beneficiaries by paying more appropriately for Medicare covered drugs and the administration of those covered drugs. Second, the new preventive benefits in Medicare will help beneficiaries cover the cost of screening tests for heart disease and diabetes, and will provide a "Welcome to Medicare" exam (including coverage for associated services) for beneficiaries entering the program.

The Part B premium increase may not exceed any beneficiary's cost of living adjustment in their Social Security check. For the great majority of beneficiaries, the Social Security cost of living increase is likely to be significantly greater than the premium change.

About 93 percent of Medicare's 41.8 million beneficiaries are enrolled in Part B, which helps pay for physician services, hospital outpatient care, durable medical equipment and other services, including some home health care. These beneficiaries generally pay the monthly premium, or have it paid on their behalf by Medicaid (including Medicare Savings Program) if they have limited incomes. Medicaid currently pays some or all of the Part B premium for about 6.3 million Medicare beneficiaries. Many beneficiaries with retiree coverage and some beneficiaries in Medicare Advantage plans also have some or all of these premiums paid on their behalf.

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 $912 in 2005, an increase of $36 from this year's $876 deductible. The Part A deductible is the beneficiary's only cost for up to 60 days of Medicare-covered inpatient hospital care in a benefit period. Beneficiaries must pay an additional $228 per day for days 61 through 90 in 2005, and $456 per day for hospital stays beyond the 90th day in a benefit period. For 2004, per day payment for days 61 through 90 was $219, and $438 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 $114 in 2005, compared to $109.50 in 2004. Those who enroll in Medicare Advantage plans may not be affected by the Part A increase, and may receive additional benefits with different cost-sharing arrangements. All of these Part A payment changes are determined by a statutory formula.

About 99 percent of Medicare beneficiaries do not pay a premium for Part A services since they have at least 40 quarters of Medicare-covered employment. However, other seniors and certain persons under age 65 with disabilities who have fewer than 30 quarters of coverage may obtain Part A coverage by paying a monthly premium set according to a statutory formula. This premium will be $375 for 2005, an increase of $32 from 2004. In addition, seniors with 30 to 39 quarters of coverage, and certain disabled persons with 30 or more quarters of coverage, pay a reduced premium of $206.

Section 629 of the Medicare Modernization Act of 2003 requires raising the Part B deductible in 2005 and indexing it thereafter. In 2005, the Part B deductible will be $110. Beginning January 1, 2006, the deductible will be indexed to the increase in the average cost of Part B services for aged beneficiaries.

As noted above, states have programs that pay some or all of beneficiaries' premiums and coinsurance for certain people who have Medicare and a limited income. Information is available at 1-800-MEDICARE (1-800-633-4227) and, for hearing and speech impaired, at TTY/TDD: 1-877-486-2048.


Note: All HHS press releases, fact sheets and other press materials are available at

Last Revised: September 3, 2004

HHS Home | Questions? | Contact HHS | Site Map | Accessibility | Privacy Policy | Freedom of Information Act | Disclaimers

The White House | FirstGov