Raising Medicare Premiums for Higher-Income Beneficiaries: Assessing the Implications

The analysis of Medicare beneficiaries estimated to pay the income-related premium under current and proposed law are based on the Urban Institute’s Dynamic Simulation of Income Model (DYNASIM3).  DYNASIM3 starts with a self-weighting sample of 103,072 individuals from the 1990 to 1993 panels of the Survey of Income and Program Participation (SIPP) and ages this starting sample in yearly increments to 2085 using parameters estimated from longitudinal data sources.  The model integrates many important trends and differences among groups in life course processes, including birth, death, schooling, leaving home, first marriage, remarriage, divorce, disability, work, retirement, and earnings.  Projections of fertility, disability, mortality, net immigration, employment, average earnings, and price changes are aligned to be consistent with 2013 OASDI Trustees projections, based on the intermediate demographic and economic assumptions (available at http://www.ssa.gov/oact/tr/2013/trTOC.html).  For a fuller description of DYNASIM3, see Karen E. Smith, “Projection Methods Used in the Dynamic Simulation of Income Model (DYNASIM3),” Urban Institute Program on Retirement Policy (2012).

The Centers for Medicare & Medicaid Services Office of the Actuary (OACT) has released estimates of actual and projected Part B and Part D enrollees paying income-related premiums under current law, but OACT has not released projections of how many Medicare beneficiaries would pay income-related premiums for Part B or Part D under the proposals discussed in this brief.  DYNASIM produces estimates of enrollees paying income-related premiums that are very similar to, but not exactly the same as, OACT’s estimates under current law. The sensitivity analysis of the projected year when one-quarter of Medicare enrollees would be paying the income-related premium is based on DYNASIM projections using the low-cost and high-cost economic growth assumptions from the 2013 OASDI Trustees report.  For the purpose of this sensitivity analysis, only the economic assumptions (consumer price index, average wage index, taxable payroll, gross domestic product, and compound interest rates) were modified; the fertility, mortality, disability, immigration, and employment assumptions were unchanged from the intermediate scenario.  The low-cost scenario assumes low inflation and interest and high real wage growth.  The high-cost scenario assumes high inflation and interest and low real wage growth.