(Article by Patricia Barry from the AARP Bulletin, October 2006)

Most Medicare beneficiaries will pay an extra $5 a month for their Part B premiums in 2007, but the wealthiest will pay more under a new policy that for the first time pegs premiums to income.

The basic monthly premium, which covers doctors and other outpatient services, will rise to $93.50 next year, a 5.6 percent increase that is lower than expected. The hike is well below the annual increases of at least 13 percent over the past three years, which ate into annual cost-of-living adjustments in Social Security checks. (The 2007 Social Security increase will be announced in late fall.)

The basic 2007 premium will be more than double its 2000 level of $45.50 a month and will continue to cover 25 percent of the program's cost per person. But under the new policy, enacted by Congress in 2003, people with income above $80,000 ($160,000 for married couples filing joint tax returns) will pay a greater share of the costs. Those beneficiaries—about 1.5 million of them, officials say—will pay between $106 and $162.10 a month, depending on income level. Their share of the per-person cost will range from 28 to 43 percent.

By 2009, when income indexing is fully phased in, this share will rise to between 35 and 80 percent. In that year, beneficiaries with the highest incomes (more than $200,000 for individuals or $400,000 for couples) are expected to pay at least three times the amount of the basic premium.

The most affluent beneficiaries, who will pay $1,945 next year in premiums, will still receive about $4,300 in services, officials say. They claim the surcharge will improve the program's finances by $20 billion over the next decade, a small fraction of the hundreds of billions of dollars the program will cost.