[Federal Register Volume 77, Number 225 (Wednesday, November 21, 2012)]
[Notices]
[Pages 69850-69859]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-28275]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

[CMS-8048-N]
RIN 0938-AR16


Medicare Program; Medicare Part B Monthly Actuarial Rates, 
Premium Rate, and Annual Deductible Beginning January 1, 2013

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Notice.

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SUMMARY: This notice announces the monthly actuarial rates for aged 
(age 65 and over) and disabled (under age 65) beneficiaries enrolled in 
Part B of the Medicare Supplementary Medical

[[Page 69851]]

Insurance (SMI) program beginning January 1, 2013. In addition, this 
notice announces the monthly premium for aged and disabled 
beneficiaries as well as the income-related monthly adjustment amounts 
to be paid by beneficiaries with modified adjusted gross income above 
certain threshold amounts. The monthly actuarial rates for 2013 are 
$209.80 for aged enrollees and $235.50 for disabled enrollees. The 
standard monthly Part B premium rate for all enrollees for 2013 is 
$104.90, which is equal to 50 percent of the monthly actuarial rate for 
aged enrollees or approximately 25 percent of the expected average 
total cost of Part B coverage for aged enrollees. (The 2012 standard 
premium rate was $99.90.) The Part B deductible for 2013 is $147.00 for 
all Part B beneficiaries. If a beneficiary has to pay an income-related 
monthly adjustment, they may have to pay a total monthly premium of 
about 35, 50, 65, or 80 percent of the total cost of Part B coverage.

DATES: January 1, 2013.

FOR FURTHER INFORMATION CONTACT: M. Kent Clemens, (410) 786-6391.

SUPPLEMENTARY INFORMATION:

I. Background

    Part B is the voluntary portion of the Medicare program that pays 
all or part of the costs for physicians' services, outpatient hospital 
services, certain home health services, services furnished by rural 
health clinics, ambulatory surgical centers, comprehensive outpatient 
rehabilitation facilities, and certain other medical and health 
services not covered by Medicare Part A, Hospital Insurance. Medicare 
Part B is available to individuals who are entitled to Medicare Part A, 
as well as to U.S. residents who have attained age 65 and are citizens, 
and aliens who were lawfully admitted for permanent residence and have 
resided in the United States for 5 consecutive years. Part B requires 
enrollment and payment of monthly premiums, as described in 42 CFR part 
407, subpart B, and part 408, respectively. The difference between the 
premiums paid by all enrollees and total incurred costs is met by 
transfers from the general fund of the Treasury.
    The Secretary of the Department of Health and Human Services (the 
Secretary) is required by section 1839 of the Social Security Act (the 
Act) to announce the Part B monthly actuarial rates for aged and 
disabled beneficiaries as well as the monthly Part B premium. The Part 
B annual deductible is included because its determination is directly 
linked to the aged actuarial rate.
    The monthly actuarial rates for aged and disabled enrollees are 
used to determine the correct amount of general revenue financing per 
beneficiary each month. These amounts, according to actuarial 
estimates, will equal, respectively, one-half of the expected average 
monthly cost of Part B for each aged enrollee (age 65 or over) and one-
half of the expected average monthly cost of Part B for each disabled 
enrollee (under age 65).
    The Part B deductible to be paid by enrollees is also announced. 
Prior to the Medicare Prescription Drug, Improvement, and Modernization 
Act of 2003 (MMA) (Pub. L. 108-173), the Part B deductible was set in 
statute. After setting the 2005 deductible amount at $110, section 629 
of the MMA (amending section 1833(b) of the Act) requires that the Part 
B deductible be indexed beginning in 2006. The inflation factor to be 
used each year is the annual percentage increase in the Part B 
actuarial rate for enrollees age 65 and over. Specifically, the 2013 
Part B deductible is calculated by multiplying the 2012 deductible by 
the ratio of the 2013 aged actuarial rate over the 2012 aged actuarial 
rate. The amount determined under this formula is then rounded to the 
nearest $1.
    The monthly Part B premium rate to be paid by aged and disabled 
enrollees is also announced. (Although the costs to the program per 
disabled enrollee are different than for the aged, the statute provides 
that they pay the same premium amount.) Beginning with the passage of 
section 203 of the Social Security Amendments of 1972 (Pub. L. 92-603), 
the premium rate, which was determined on a fiscal year basis, was 
limited to the lesser of the actuarial rate for aged enrollees, or the 
current monthly premium rate increased by the same percentage as the 
most recent general increase in monthly Title II social security 
benefits.
    However, the passage of section 124 of the Tax Equity and Fiscal 
Responsibility Act of 1982 (TEFRA) (Pub. L. 97-248) suspended this 
premium determination process. Section 124 of TEFRA changed the premium 
basis to 50 percent of the monthly actuarial rate for aged enrollees 
(that is, 25 percent of program costs for aged enrollees). Section 606 
of the Social Security Amendments of 1983 (Pub. L. 98-21), section 2302 
of the Deficit Reduction Act of 1984 (DEFRA 84) (Pub. L. 98-369), 
section 9313 of the Consolidated Omnibus Budget Reconciliation Act of 
1985 (COBRA 85) (Pub. L. 99-272), section 4080 of the Omnibus Budget 
Reconciliation Act of 1987 (OBRA 87) (Pub. L. 100-203), and section 
6301 of the Omnibus Budget Reconciliation Act of 1989 (OBRA 89) (Pub. 
L. 101-239) extended the provision that the premium be based on 50 
percent of the monthly actuarial rate for aged enrollees (that is, 25 
percent of program costs for aged enrollees). This extension expired at 
the end of 1990.
    The premium rate for 1991 through 1995 was legislated by section 
1839(e)(1)(B) of the Act, as added by section 4301 of the Omnibus 
Budget Reconciliation Act of 1990 (OBRA 90) (Pub. L. 101-508). In 
January 1996, the premium determination basis would have reverted to 
the method established by the 1972 Social Security Act Amendments. 
However, section 13571 of the Omnibus Budget Reconciliation Act of 1993 
(OBRA 93) (Pub. L. 103-66) changed the premium basis to 50 percent of 
the monthly actuarial rate for aged enrollees (that is, 25 percent of 
program costs for aged enrollees) for 1996 through 1998.
    Section 4571 of the Balanced Budget Act of 1997 (BBA) (Pub. L. 105-
33) permanently extended the provision that the premium be based on 50 
percent of the monthly actuarial rate for aged enrollees (that is, 25 
percent of program costs for aged enrollees).
    The BBA included a further provision affecting the calculation of 
the Part B actuarial rates and premiums for 1998 through 2003. Section 
4611 of the BBA modified the home health benefit payable under Part A 
for individuals enrolled in Part B. Under this section, beginning in 
1998, expenditures for home health services not considered ``post-
institutional'' are payable under Part B rather than Part A. However, 
section 4611(e)(1) of the BBA required that there be a transition from 
1998 through 2002 for the aggregate amount of the expenditures 
transferred from Part A to Part B. Section 4611(e)(2) of the BBA also 
provided a specific yearly proportion for the transferred funds. The 
proportions were \1/6\ for 1998, \1/3\ for 1999, \1/2\ for 2000, \2/3\ 
for 2001, and \5/6\ for 2002. For the purpose of determining the 
correct amount of financing from general revenues of the Federal 
Government, it was necessary to include only these transitional amounts 
in the monthly actuarial rates for both aged and disabled enrollees, 
rather than the total cost of the home health services being 
transferred.
    Section 4611(e)(3) of the BBA also specified, for the purpose of 
determining the premium, that the monthly actuarial rate for enrollees 
age 65 and over be computed as though the transition would occur for 
1998 through 2003 and that \1/7\ of the cost be transferred in 1998, 
\2/7\ in 1999, \3/7\ in

[[Page 69852]]

2000, \4/7\ in 2001, \5/7\ in 2002, and \6/7\ in 2003. Therefore, the 
transition period for incorporating this home health transfer into the 
premium was 7 years while the transition period for including these 
services in the actuarial rate was 6 years.
    Section 811 of the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 (Pub. L. 108-173, also known as the Medicare 
Modernization Act, or MMA), which amended section 1839 of the Act, 
requires that, starting on January 1, 2007, the Part B premium a 
beneficiary pays each month be based on their annual income. 
Specifically, if a beneficiary's ``modified adjusted gross income'' is 
greater than the legislated threshold amounts (for 2013, $85,000 for a 
beneficiary filing an individual income tax return, and $170,000 for a 
beneficiary filing a joint tax return) the beneficiary is responsible 
for a larger portion of the estimated total cost of Part B benefit 
coverage. In addition to the standard 25 percent premium, these 
beneficiaries now have to pay an income-related monthly adjustment 
amount. The MMA made no change to the actuarial rate calculation, and 
the standard premium, which will continue to be paid by beneficiaries 
whose modified adjusted gross income is below the applicable 
thresholds, still represents 25 percent of the estimated total cost to 
the program of Part B coverage for an aged enrollee. However, depending 
on income and tax filing status, a beneficiary can now be responsible 
for 35, 50, 65, or 80 percent of the estimated total cost of Part B 
coverage, rather than 25 percent. The end result of the higher premium 
is that the Part B premium subsidy is reduced and less general revenue 
financing is required for beneficiaries with higher income because they 
are paying a larger share of the total cost with their premium. That 
is, the premium subsidy continues to be approximately 75 percent for 
beneficiaries with income below the applicable income thresholds, but 
will be reduced for beneficiaries with income above these thresholds. 
The MMA specified that there be a 5-year transition to full 
implementation of this provision. However, section 5111 of the Deficit 
Reduction Act of 2005 (Pub. L. 109-171) (DRA) modified the transition 
to a 3-year period.
    Section 4732(c) of the BBA added section 1933(c) of the Act, which 
required the Secretary to allocate money from the Part B trust fund to 
the State Medicaid programs for the purpose of providing Medicare Part 
B premium assistance from 1998 through 2002 for the low-income Medicaid 
beneficiaries who qualify under section 1933 of the Act. This 
allocation, while not a benefit expenditure, was an expenditure of the 
trust fund and was included in calculating the Part B actuarial rates 
through 2002. For 2003 through 2012, the expenditure was made from the 
trust fund because the allocation was temporarily extended. However, 
because the extension occurred after the financing was determined, the 
allocation was not included in the calculation of the financing rates.
    A further provision affecting the calculation of the Part B premium 
is section 1839(f) of the Act, as amended by section 211 of the 
Medicare Catastrophic Coverage Act of 1988 (MCCA 88) (Pub. L. 100-360). 
(The Medicare Catastrophic Coverage Repeal Act of 1989 (Pub. L. 101-
234) did not repeal the revisions to section 1839(f) made by MCCA 88.) 
Section 1839(f) of the Act, referred to as the ``hold-harmless'' 
provision, provides that if an individual is entitled to benefits under 
section 202 or 223 of the Act (the Old-Age and Survivors Insurance 
Benefit and the Disability Insurance Benefit, respectively) and has the 
Part B premiums deducted from these benefit payments, the premium 
increase will be reduced, if necessary, to avoid causing a decrease in 
the individual's net monthly payment. This decrease in payment occurs 
if the increase in the individual's social security benefit due to the 
cost-of-living adjustment under section 215(i) of the Act is less than 
the increase in the premium. Specifically, the reduction in the premium 
amount applies if the individual is entitled to benefits under section 
202 or 223 of the Act for November and December of a particular year 
and the individual's Part B premiums for December and the following 
January are deducted from the respective month's section 202 or 223 
benefits. The ``hold-harmless'' provision does not apply to 
beneficiaries who are required to pay an income-related monthly 
adjustment amount.
    A check for benefits under section 202 or 223 of the Act is 
received in the month following the month for which the benefits are 
due. The Part B premium that is deducted from a particular check is the 
Part B payment for the month in which the check is received. Therefore, 
a benefit check for November is not received until December, but has 
December's Part B premium deducted from it.
    Generally, if a beneficiary qualifies for hold-harmless protection, 
the reduced premium for the individual for that January and for each of 
the succeeding 11 months is the greater of--
     The monthly premium for January reduced as necessary to 
make the December monthly benefits, after the deduction of the Part B 
premium for January, at least equal to the preceding November's monthly 
benefits, after the deduction of the Part B premium for December; or
     The monthly premium for that individual for that December.
    In determining the premium limitations under section 1839(f) of the 
Act, the monthly benefits to which an individual is entitled under 
section 202 or 223 of the Act do not include retroactive adjustments or 
payments and deductions on account of work. Also, once the monthly 
premium amount is established under section 1839(f) of the Act, it will 
not be changed during the year even if there are retroactive 
adjustments or payments and deductions on account of work that apply to 
the individual's monthly benefits.
    Individuals who have enrolled in Part B late or who have re-
enrolled after the termination of a coverage period are subject to an 
increased premium under section 1839(b) of the Act. The increase is a 
percentage of the premium and is based on the new premium rate before 
any reductions under section 1839(f) of the Act are made.

II. Provisions of the Notice

A. Notice of Medicare Part B Monthly Actuarial Rates, Monthly Premium 
Rates, and Annual Deductible

    The Medicare Part B monthly actuarial rates applicable for 2013 are 
$209.80 for enrollees age 65 and over and $235.50 for disabled 
enrollees under age 65. In section II.B. of this notice, we present the 
actuarial assumptions and bases from which these rates are derived. The 
Part B standard monthly premium rate for all enrollees for 2013 is 
$104.90. The Part B annual deductible for 2013 is $147.00. Listed below 
are the 2013 Part B monthly premium rates to be paid by beneficiaries 
who file an individual tax return (including those who are single, head 
of household, qualifying widow(er) with dependent child, or married 
filing separately who lived apart from their spouse for the entire 
taxable year), or a joint tax return.

[[Page 69853]]



----------------------------------------------------------------------------------------------------------------
                                                                                          Income-
                                                                                          related       Total
   Beneficiaries who file an individual tax       Beneficiaries who file a joint tax      monthly      monthly
             return with  income:                         return with income:            adjustment    premium
                                                                                           amount       amount
----------------------------------------------------------------------------------------------------------------
Less than or equal to $85,000.................  Less than or equal to $170,000........        $0.00      $104.90
Greater than $85,000 and less than or equal to  Greater than $170,000 and less than or        42.00       146.90
 $107,000.                                       equal to $214,000.
Greater than $107,000 and less than or equal    Greater than $214,000 and less than or       104.90       209.80
 to $160,000.                                    equal to $320,000.
Greater than $160,000 and less than or equal    Greater than $320,000 and less than or       167.80       272.70
 to $214,000.                                    equal to $428,000.
Greater than $214,000.........................  Greater than $428,000.................       230.80       335.70
----------------------------------------------------------------------------------------------------------------

    In addition, the monthly premium rates to be paid by beneficiaries 
who are married and lived with their spouse at any time during the 
taxable year, but file a separate tax return from their spouse, are 
listed below.

------------------------------------------------------------------------
                                                  Income-
 Beneficiaries who are married and lived with     related       Total
 their spouse at any time during the year, but    monthly      monthly
 file a separate tax return from their spouse:   adjustment    premium
                                                   amount       amount
------------------------------------------------------------------------
Less than or equal to $85,000.................        $0.00      $104.90
Greater than $85,000 and less than or equal to       167.80       272.70
 $129,000.....................................
Greater than $129,000.........................       230.80       335.70
------------------------------------------------------------------------

    The Part B annual deductible for 2013 is $147.00 for all 
beneficiaries.

B. Statement of Actuarial Assumptions and Bases Employed in Determining 
the Monthly Actuarial Rates and the Monthly Premium Rate for Part B 
Beginning January 2013

    Except where noted, the actuarial assumptions and bases used to 
determine the monthly actuarial rates and the monthly premium rates for 
Part B are established by the Office of the Actuary in the Centers for 
Medicare & Medicaid Services. The estimates underlying these 
determinations are prepared by actuaries meeting the qualification 
standards and following the actuarial standards of practice established 
by the Actuarial Standards Board.
1. Actuarial Status of the Part B Account in the Supplementary Medical 
Insurance Trust Fund
    Under the statute, the starting point for determining the standard 
monthly premium is the amount that would be necessary to finance Part B 
on an incurred basis. This is the amount of income that would be 
sufficient to pay for services furnished during that year (including 
associated administrative costs) even though payment for some of these 
services will not be made until after the close of the year. The 
portion of income required to cover benefits not paid until after the 
close of the year is added to the trust fund and used when needed.
    The premium rates are established prospectively and are, therefore, 
subject to projection error. Additionally, legislation enacted after 
the financing was established, but effective for the period in which 
the financing is set, may affect program costs. As a result, the income 
to the program may not equal incurred costs. Therefore, trust fund 
assets must be maintained at a level that is adequate to cover an 
appropriate degree of variation between actual and projected costs, and 
the amount of incurred, but unpaid, expenses. Numerous factors 
determine what level of assets is appropriate to cover variation 
between actual and projected costs. The three most important of these 
factors are: (1) The difference from prior years between the actual 
performance of the program and estimates made at the time financing was 
established; (2) the likelihood and potential magnitude of expenditure 
changes resulting from enactment of legislation affecting Part B costs 
in a year subsequent to the establishment of financing for that year, 
and (3) the expected relationship between incurred and cash 
expenditures. These factors are analyzed on an ongoing basis, as the 
trends can vary over time.
    Table 1 summarizes the estimated actuarial status of the trust fund 
as of the end of the financing period for 2011 and 2012.

    Table 1--Estimated Actuarial Status of the Part B Account in the
     Supplementary Medical Insurance Trust Fund as of the End of the
                            Financing Period
------------------------------------------------------------------------
                                                             Assets less
    Financing period ending        Assets      Liabilities   liabilities
                                 (millions)    (millions)    (millions)
------------------------------------------------------------------------
December 31, 2011.............       $79,693       $15,015       $64,678
December 31, 2012.............        68,164        17,162        51,002
------------------------------------------------------------------------


[[Page 69854]]

2. Monthly Actuarial Rate for Enrollees Age 65 and Older
    The monthly actuarial rate for enrollees age 65 and older is one-
half of the sum of monthly amounts for: (1) The projected cost of 
benefits; and (2) administrative expenses for each enrollee age 65 and 
older, after adjustments to this sum to allow for interest earnings on 
assets in the trust fund and an adequate contingency margin. The 
contingency margin is an amount appropriate to provide for possible 
variation between actual and projected costs and to amortize any 
surplus assets or unfunded liabilities.
    The monthly actuarial rate for enrollees age 65 and older for 2013 
is determined by first establishing per-enrollee cost by type of 
service from program data through 2011 and then projecting these costs 
for subsequent years. The projection factors used for financing periods 
from January 1, 2010 through December 31, 2013 are shown in Table 2.
    As indicated in Table 3, the projected monthly rate required to pay 
for one-half of the total of benefits and administrative costs for 
enrollees age 65 and over for 2013 is $198.11. Based on current 
estimates, the assets are not sufficient to cover the amount of 
incurred, but unpaid, expenses and to provide for a significant degree 
of variation between actual and projected costs. Thus, a positive 
contingency margin is needed to increase assets to a more appropriate 
level. The monthly actuarial rate of $209.80 provides an adjustment of 
$14.07 for a contingency margin and -$2.38 for interest earnings.
    The size of the contingency margin for 2013 is affected by several 
factors. The largest factor involves the current law formula for 
physician fees, which is scheduled to result in a reduction in 
physician fees of nearly 30 percent in 2013. For each year from 2003 
through 2012, Congress has acted to prevent physician fee reductions 
from occurring. In recognition of the strong possibility of substantial 
increase in Part B expenditures that would result from similar 
legislation to override the decreases in physician fees in 2013, it is 
appropriate to maintain a significantly larger Part B contingency 
reserve than would otherwise be necessary. The asset level projected 
for the end of 2012 is not adequate to accommodate this contingency.
    As noted, the scheduled physician fee schedule reductions have been 
legislatively overridden for each year since 2003. During this period, 
lawmakers enacted physician payment updates that ranged from 0 percent 
to 2.2 percent; the average increase was 1 percent per year over this 
period. The 2012 Medicare Technical Review Panel recommended using a 1-
percent physician fee schedule update assumption for alternative 
analysis and financial projection purposes, and the Office of the 
Actuary has adopted this recommendation. However, the contingency 
margin for the 2013 Part B premium has been calculated based on an 
assumption that the scheduled physician payment reduction for 2013 will 
be legislatively changed to 0 percent. Use of the 0-percent physician 
fee update assumption for purposes of the contingency margin was 
directed by the Secretary, who determines the Part B premium each year 
under section 1839 of the Act. In view of the additional data that are 
now available, and the continuing uncertainty associated with the 
legislative process, an assessment of the reasonableness of this 
assumption and its impact on the adequacy of Part B assets in 2013 
would require substantial additional time and analysis. Such an 
analysis is not feasible within the available time. Accordingly, the 
Office of the Actuary is unable to determine the reasonableness of this 
assumption for the purposes of determining the contingency margin.
    Another factor affecting the size of the contingency margin comes 
from section 302 of The Budget Control Act of 2011 (Pub. L. 112-25), 
which mandates a government-wide sequestration process to reduce 
Federal outlays. The sequestration process will automatically start in 
February 2013 under current law. Medicare benefit payments are subject 
to a maximum 2-percent reduction. Total Part B expenditures are 
estimated to be reduced by $4.3 billion in 2013 as a result of this 
sequestration. However, reductions of this dollar magnitude from the 
physician payment formula have been legislatively overridden in past 
years, and there is a possibility that the sequestration requirements 
will be modified or postponed before taking effect. The contingency 
margin has been adjusted to accommodate this possibility.
    Two other, smaller factors affect the contingency margin for 2013. 
Starting in 2011, manufacturers and importers of brand-name 
prescription drugs have paid a fee that is allocated to the Part B 
account of the SMI trust. For 2013, the total of these brand-name drug 
fees is estimated to be $2.7 billion. The contingency margin has been 
reduced to account for this additional revenue.
    Another small factor impacting the contingency margin comes from 
the requirement that certain payment incentives, to encourage the 
development and use of health information technology (HIT) by Medicare 
physicians, are to be excluded from the premium determination. HIT 
bonuses or penalties will be directly offset through transfers with the 
general fund of the Treasury. The monthly actuarial rate includes an 
adjustment of -$0.86 for HIT bonus payments in 2013.
    The traditional goal for the Part B reserve has been that assets 
minus liabilities at the end of a year should represent between 15 and 
20 percent of the following year's total incurred expenditures. To 
accomplish this goal, a 17 percent reserve has been the normal target 
used to calculate the Part B premium. In view of the strong likelihood 
of actual expenditures exceeding estimated levels, due to the 
likelihood of the enactment of legislation after the financing has been 
set for 2013 as a result of the scheduled 2013 physician update and, 
possibly in addition, the scheduled 2013 sequestration, a contingency 
reserve ratio in excess of 20 percent of the following year's 
expenditures would better ensure that the assets of the Part B account 
can adequately cover the cost of incurred-but-not-reported benefits 
together with variations between actual and estimated cost levels.
    The actuarial rate of $209.80 per month for aged beneficiaries, as 
announced in this notice for 2013, reflects the combined net effect of 
the factors previously described and the projection assumptions listed 
in Table 2.
3. Monthly Actuarial Rate for Disabled Enrollees
    Disabled enrollees are those persons under age 65 who are enrolled 
in Part B because of entitlement to Social Security disability benefits 
for more than 24 months or because of entitlement to Medicare under the 
end-stage renal disease (ESRD) program. Projected monthly costs for 
disabled enrollees (other than those with ESRD) are prepared in a 
fashion parallel to the projection for the aged using appropriate 
actuarial assumptions (see Table 2). Costs for the ESRD program are 
projected differently because of the different nature of services 
offered by the program.
    As shown in Table 4, the projected monthly rate required to pay for 
one-half of the total of benefits and administrative costs for disabled 
enrollees for 2013 is $231.92. The monthly actuarial rate of $235.50 
also provides an adjustment of -$4.07 for interest earnings and $7.65 
for a

[[Page 69855]]

contingency margin, reflecting the same factors described above for the 
aged actuarial rate. Based on current estimates, the assets associated 
with the disabled Medicare beneficiaries are not sufficient to cover 
the amount of incurred, but unpaid, expenses and to provide for a 
significant degree of variation between actual and projected costs. 
Thus, a positive contingency margin is needed to increase assets to an 
appropriate level.
    The actuarial rate of $235.50 per month for disabled beneficiaries, 
as announced in this notice for 2013, reflects the combined net effect 
of the factors described above for aged beneficiaries and the 
projection assumptions listed in Table 2.
4. Sensitivity Testing
    Several factors contribute to uncertainty about future trends in 
medical care costs. It is appropriate to test the adequacy of the rates 
using alternative cost growth rate assumptions. The results of those 
assumptions are shown in Table 5. One set represents increases that are 
lower and, therefore, more optimistic than the current estimate. The 
other set represents increases that are higher and, therefore, more 
pessimistic than the current estimate. The values for the alternative 
assumptions were determined from a statistical analysis of the 
historical variation in the respective increase factors.
    As indicated in Table 5, the monthly actuarial rates would result 
in an excess of assets over liabilities of $71,851 million by the end 
of December 2013 under the cost growth rate assumptions used in 
preparing this report and assuming that the provisions of current law 
are fully implemented. This amounts to 28.5 percent of the estimated 
total incurred expenditures for the following year.
    Assumptions that are somewhat more pessimistic (and that therefore 
test the adequacy of the assets to accommodate projection errors) 
produce a surplus of $38,839 million by the end of December 2013 under 
current law, which amounts to 13.8 percent of the estimated total 
incurred expenditures for the following year. If the physician fee 
reduction and the scheduled 2-percent sequestration of Medicare 
expenditures were legislatively overridden, the ratio under the 
pessimistic assumptions would be very close to zero. Under fairly 
optimistic assumptions, the monthly actuarial rates would result in a 
surplus of $96,011 million by the end of December 2013, or 42.0 percent 
of the estimated total incurred expenditures for the following year.
    The previous analysis indicates that the premium and general 
revenue financing established for 2013, together with existing Part B 
account assets would be adequate to cover estimated Part B costs for 
2013 under current law, even if actual costs prove to be somewhat 
greater than expected.
5. Premium Rates and Deductible
    As determined in accordance with section 1839 of the Act, listed 
are the 2013 Part B monthly premium rates to be paid by beneficiaries 
who file an individual tax return (including those who are single, head 
of household, qualifying widow(er) with dependent child, or married 
filing separately who lived apart from their spouse for the entire 
taxable year), or a joint tax return.

----------------------------------------------------------------------------------------------------------------
                                                                                          Income-
                                                                                          related       Total
   Beneficiaries who file an individual tax       Beneficiaries who file a joint tax      monthly      monthly
              return with income:                         return with income:            adjustment    premium
                                                                                           amount       amount
----------------------------------------------------------------------------------------------------------------
Less than or equal to $85,000.................  Less than or equal to $170,000........        $0.00      $104.90
Greater than $85,000 and less than or equal to  Greater than $170,000 and less than or        42.00       146.90
 $107,000.                                       equal to $214,000.
Greater than $107,000 and less than or equal    Greater than $214,000 and less than or       104.90       209.80
 to $160,000.                                    equal to $320,000.
Greater than $160,000 and less than or equal    Greater than $320,000 and less than or       167.80       272.70
 to $214,000.                                    equal to $428,000.
Greater than $214,000.........................  Greater than $428,000.................       230.80       335.70
----------------------------------------------------------------------------------------------------------------

    In addition, the monthly premium rates to be paid by beneficiaries 
who are married and lived with their spouse at any time during the 
taxable year, but file a separate tax return from their spouse, are 
listed below.

------------------------------------------------------------------------
                                                  Income-
 Beneficiaries who are married and lived with     related       Total
 their spouse at any time during the year, but    monthly      monthly
 file a separate tax return from their spouse:   adjustment    premium
                                                   amount       amount
------------------------------------------------------------------------
Less than or equal to $85,000.................        $0.00      $104.90
Greater than $85,000 and less than or equal to       167.80       272.70
 $129,000.....................................
Greater than $129,000.........................       230.80       335.70
------------------------------------------------------------------------


                                    Table 2--Projection Factors \1\ 12-Month Periods Ending December 31 of 2010-2013
                                                                      [In percent]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                        Physicians' services                          Other
                                       ----------------------  Durable    Carrier    carrier   Outpatient     Home     Hospital      Other      Managed
             Calendar year                          Residual   medical    lab \4\    services   hospital     health    lab \6\   intermediary     care
                                         Fees \2\     \3\     equipment                \5\                   agency              services \7\
--------------------------------------------------------------------------------------------------------------------------------------------------------
Aged:
    2010..............................        2.5        1.4        1.8        1.4        3.4         5.1        2.4        2.2          1.0        -1.8
    2011..............................        0.9        1.8       -3.9       -2.9        4.5         7.6       -1.6        4.9          4.4         0.9
    2012..............................       -1.0        2.6        4.4        6.8        3.6         9.3        0.5        5.1          8.1         2.6
    2013..............................      -28.5        8.1       -0.3        2.9        5.0         5.6        1.7        1.6         -6.4         4.3

[[Page 69856]]

 
Disabled:
    2010..............................        2.5        2.9        2.7       -3.9        3.2         5.4        1.1        0.5         -0.1        -0.9
    2011..............................        0.9        1.9       -2.2        3.7        3.5         8.3       -1.4        7.2          0.9         1.3
    2012..............................       -1.0        2.5        4.4       21.8        3.5        10.3        2.1        4.3          7.4         0.9
    2013..............................      -28.5        8.0       -0.4        2.8        4.9         5.5        2.7        1.6         -0.6         4.6
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ All values for services other than managed care are per fee-for-service enrollee. Managed care values are per managed care enrollee.
\2\ As recognized for payment under the program.
\3\ Increase in the number of services received per enrollee and greater relative use of more expensive services.
\4\ Includes services paid under the lab fee schedule furnished in the physician's office or an independent lab.
\5\ Includes physician-administered drugs, ambulatory surgical center facility costs, ambulance services, parenteral and enteral drug costs, supplies,
  etc.
\6\ Includes services paid under the lab fee schedule furnished in the outpatient department of a hospital.
\7\ Includes services furnished in dialysis facilities, rural health clinics, Federally qualified health centers, rehabilitation and psychiatric
  hospitals, etc.


 Table 3--Derivation of Monthly Actuarial Rate for Enrollees Age 65 and
Over for Financing Periods Ending December 31, 2010 Through December 31,
                                  2013
------------------------------------------------------------------------
                                           Financing periods
                             -------------------------------------------
                               CY 2010    CY 2011    CY 2012    CY 2013
------------------------------------------------------------------------
Covered services (at level
 recognized):
    Physician fee schedule..      80.62      81.75      81.25      62.90
    Durable medical                8.94       8.49       8.67       8.66
     equipment..............
    Carrier lab \1\.........       4.31       4.13       4.32       4.45
    Other carrier services        21.23      21.89      22.20      23.36
     \2\....................
    Outpatient hospital.....      32.93      34.99      37.41      39.58
    Home health.............      11.85      11.50      11.31      11.53
    Hospital lab \3\........       3.66       3.79       3.90       3.97
    Other intermediary            14.18      14.62      15.47      14.50
     services \4\...........
    Managed care............      54.74      57.06      61.63      64.00
                             -------------------------------------------
        Total services......     232.47     238.22     246.16     232.95
Cost sharing:
    Deductible..............      -5.91      -6.19      -5.37      -5.62
    Coinsurance.............     -30.91     -30.92     -31.77     -28.13
HIT payment incentives......       0.00      -0.17      -0.74      -0.86
                             -------------------------------------------
        Total pre-sequester      195.64     200.94     208.28     198.34
         benefits...........
Pre-sequester administrative       2.94       3.29       3.66       3.43
 expenses...................
Sequester...................       0.00       0.00       0.00      -3.65
                             -------------------------------------------
Incurred expenditures.......     198.58     204.23     211.94     198.11
Value of interest...........      -2.74      -2.52      -2.12      -2.38
Contingency margin for            25.16      28.99     -10.02      14.07
 projection error and to
 amortize the surplus or
 deficit....................
        Monthly actuarial        221.00     230.70     199.80     209.80
         rate...............
------------------------------------------------------------------------
\1\ Includes services paid under the lab fee schedule furnished in the
  physician's office or an independent lab.
\2\ Includes physician-administered drugs, ambulatory surgical center
  facility costs, ambulance services, parenteral and enteral drug costs,
  supplies, etc.
\3\ Includes services paid under the lab fee schedule furnished in the
  outpatient department of a hospital.
\4\ Includes services furnished in dialysis facilities, rural health
  clinics, Federally qualified health centers, rehabilitation and
  psychiatric hospitals, etc.


Table 4--Derivation of Monthly Actuarial Rate for Disabled Enrollees for
  Financing Periods Ending December 31, 2010 Through December 31, 2013
------------------------------------------------------------------------
                                           Financing periods
                             -------------------------------------------
                               CY 2010    CY 2011    CY 2012    CY 2013
------------------------------------------------------------------------
Covered services (at level
 recognized):
    Physician fee schedule..      85.33      86.85      86.45      66.85
    Durable medical               16.89      16.24      16.62      16.59
     equipment..............
    Carrier lab \1\.........       5.84       5.10       6.05       6.24
    Other carrier services        25.89      26.27      26.38      27.72
     \2\....................
    Outpatient hospital.....      46.13      49.37      53.31      56.33
    Home health.............      10.10       9.82       9.82      10.11
    Hospital lab \3\........       5.16       5.38       5.50       5.59
    Other intermediary            41.05      41.70      42.66      42.61
     services \4\...........
    Managed care............      40.77      43.51      47.40      48.99
                             -------------------------------------------

[[Page 69857]]

 
        Total services......     277.16     284.24     294.20     281.03
Cost sharing:
    Deductible..............      -5.55      -5.81      -5.05      -5.28
    Coinsurance.............     -45.71     -46.19     -46.76     -42.62
HIT payment incentives......       0.00      -0.18      -0.77      -0.90
                             -------------------------------------------
        Total pre-sequester      225.90     232.05     241.62     232.23
         benefits...........
Pre-sequester administrative       3.38       3.80       4.26       3.97
 expenses...................
Sequester...................       0.00       0.00       0.00      -4.27
                             -------------------------------------------
Incurred expenditures.......     229.28     235.85     245.87     231.92
Value of interest...........      -4.05      -5.05      -4.52      -4.07
Contingency margin for            45.17      35.49     -48.85       7.65
 projection error and to
 amortize the surplus or
 deficit....................
                             -------------------------------------------
        Monthly actuarial        270.40     266.30     192.50     235.50
         rate...............
------------------------------------------------------------------------
\1\ Includes services paid under the lab fee schedule furnished in the
  physician's office or an independent lab.
\2\ Includes physician-administered drugs, ambulatory surgical center
  facility costs, ambulance services, parenteral and enteral drug costs,
  supplies, etc.
\3\ Includes services paid under the lab fee schedule furnished in the
  outpatient department of a hospital.
\4\ Includes services furnished in dialysis facilities, rural health
  clinics, Federally qualified health centers, rehabilitation and
  psychiatric hospitals, etc.


  Table 5--Actuarial Status of the Part B Account in the SMI Trust Fund
 Under Three Sets of Assumptions for Financing Periods Through December
                                31, 2013
------------------------------------------------------------------------
           As of December 31,               2011       2012       2013
------------------------------------------------------------------------
This projection:
        Actuarial status (in millions):
    Assets.............................     79,693     68,164     88,193
    Liabilities........................     15,015     17,162     16,341
                                        --------------------------------
    Assets less liabilities............     64,678     51,002     71,851
Ratio (in percent) \1\.................       26.6       21.7       28.5
Low cost projection:
        Actuarial status (in millions):
    Assets.............................     79,693     77,325    111,554
    Liabilities........................     15,015     16,144     15,542
                                        --------------------------------
    Assets less liabilities............     64,678     61,180     96,011
    Ratio (in percent) \1\.............       27.8       28.2       42.0
High cost projection:
        Actuarial status (in millions):
    Assets.............................     79,693     57,291     55,997
    Liabilities........................     15,015     18,370     17,158
                                        --------------------------------
    Assets less liabilities............     64,678     38,921     38,839
    Ratio (in percent)\1\..............       25.3       15.2       13.8
------------------------------------------------------------------------
\1\ Ratio of assets less liabilities at the end of the year to the total
  incurred expenditures during the following year, expressed as a
  percent. These estimates are based on the assumption that all
  provisions of current law will be implemented in full, including (i)
  the approximately 28.0-percent reduction in Medicare payment rates to
  physicians required by the statutory ``sustainable growth rate''
  formula, and (ii) the sequestration of up to 2 percent of all Medicare
  payments to providers and plans as required by the Budget Control Act
  of 2011. Under the intermediate projection assumptions (as shown in
  table 2), if the 2013 physician payment reduction were overridden
  through new legislation, then the Part B asset reserve ratio for
  December 31, 2013 would be approximately 9.3 percentage points lower
  than shown here. If, in addition, the 2013 sequestration were
  similarly overridden, then the reserve ratios at the end of 2013 would
  be reduced by approximately another 2 percentage points. The impacts
  of these potential overrides on the 2013 reserve ratio for the low
  cost and high cost projections would be similar.

III. Regulatory Impact Analysis

A. Statement of Need

    Section 1839 of the Act requires us to annually announce (that is 
by September 30th of each year) the Part B monthly actuarial rates for 
aged and disabled beneficiaries as well as the monthly Part B premium. 
We also announce the Part B annual deductible because its determination 
is directly linked to the aged actuarial rate.

B. Overall Impact

    We have examined the impacts of this rule as required by Executive 
Order 12866 on Regulatory Planning and Review (September 30, 1993), 
Executive Order 13563 on Improving Regulation and Regulatory Review 
(January 18, 2011), the Regulatory Flexibility Act (RFA) (September 19, 
1980, Pub. L. 96 354), section 1102(b) of the Social Security Act, 
section 202 of the Unfunded Mandates Reform Act of 1995 (March 22, 
1995; Pub. L. 104-4), Executive Order 13132 on Federalism

[[Page 69858]]

(August 4, 1999) and the Congressional Review Act (5 U.S.C. 804(2).
    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). A 
regulatory impact analysis (RIA) must be prepared for major notice with 
economically significant effects ($100 million or more in any 1 year).
    The RFA requires agencies to analyze options for regulatory relief 
of small businesses, if a rule has a significant impact on a 
substantial number of small entities. For purposes of the RFA, small 
entities include small businesses, nonprofit organizations, and small 
governmental jurisdictions. Most hospitals and most other providers and 
suppliers are small entities, either by nonprofit status or by having 
revenues of $7.0 million to $34.5 million in any 1 year. Individuals 
and States are not included in the definition of a small entity. This 
notice will not have a significant impact on a substantial number of 
small businesses or other small entities. Therefore, the Secretary has 
determined that this notice will not have a significant economic impact 
on a substantial number of small entities.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a rule may have a significant impact on 
the operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 604 of the RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a Metropolitan 
Statistical Area and has fewer than 100 beds. We have determined that 
this notice will not have a significant effect on a substantial number 
of small entities or on the operations of a substantial number of small 
rural hospitals. Therefore, we are not preparing analyses for either 
the RFA or section 1102(b) of the Act.
    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any 1 year of $100 
million in 1995 dollars, updated annually for inflation. In 2012, that 
threshold is approximately $139 million. This notice has no 
consequential effect on State, local, or tribal governments. We believe 
the private sector costs of this notice fall below this threshold as 
well.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it publishes a proposed rule (and subsequent 
final rule) that imposes substantial direct compliance costs on State 
and local governments, preempts State law, or otherwise has Federalism 
implications. We have determined that this notice does not 
significantly affect the rights, roles, and responsibilities of States.
    This notice announces that the monthly actuarial rates applicable 
for 2013 are $209.80 for enrollees age 65 and over and $235.50 for 
disabled enrollees under age 65. It also announces the 2013 monthly 
Part B premium rates to be paid by beneficiaries who file an individual 
tax return (including those who are single, head of household, 
qualifying widow(er) with a dependent child, or married filing 
separately who lived apart from their spouse for the entire taxable 
year), or a joint tax return.

----------------------------------------------------------------------------------------------------------------
                                                                                          Income-
                                                                                          related       Total
   Beneficiaries who file an individual tax       Beneficiaries who file a joint tax      monthly      monthly
              return with income:                         return with income:            adjustment    premium
                                                                                           amount       amount
----------------------------------------------------------------------------------------------------------------
Less than or equal to $85,000.................  Less than or equal to $170,000........        $0.00      $104.90
Greater than $85,000 and less than or equal to  Greater than $170,000 and less than or        42.00       146.90
 $107,000.                                       equal to $214,000.
Greater than $107,000 and less than or equal    Greater than $214,000 and less than or       104.90       209.80
 to $160,000.                                    equal to $320,000.
Greater than $160,000 and less than or equal    Greater than $320,000 and less than or       167.80       272.70
 to $214,000.                                    equal to $428,000.
Greater than $214,000.........................  Greater than $428,000.................       230.80       335.70
----------------------------------------------------------------------------------------------------------------

    In addition, the monthly premium rates to be paid by beneficiaries 
who are married and lived with their spouse at any time during the 
taxable year, but file a separate tax return from their spouse, are 
also announced and listed in the following chart.

------------------------------------------------------------------------
                                                  Income-
 Beneficiaries who are married and lived with     related       Total
 their spouse at any time during the year, but    monthly      monthly
 file a separate tax return from their spouse:   adjustment    premium
                                                   amount       amount
------------------------------------------------------------------------
Less than or equal to $85,000.................        $0.00      $104.90
Greater than $85,000 and less than or equal to       167.80       272.70
 $129,000.....................................
Greater than $129,000.........................       230.80       335.70
------------------------------------------------------------------------

    The standard Part B premium rate of $104.90 is 5 percent higher 
than the $99.90 premium rate for 2012. We estimate that this increase 
will cost approximately 48.1 million Part B enrollees about $2.4 
billion for 2013. Therefore, this notice is a major rule as defined in 
5 U.S.C. 804(2) and is an economically significant rule under Executive 
Order 12866.
    In accordance with the provisions of Executive Order 12866, this 
notice was reviewed by the Office of Management and Budget.

IV. Waiver of Proposed Notice

    The Medicare statute requires the publication of the monthly 
actuarial rates and the Part B premium amounts in September. We 
ordinarily use general notices, rather than notice and comment 
rulemaking procedures, to make such

[[Page 69859]]

announcements. In doing so, we note that, under the Administrative 
Procedure Act, interpretive rules, general statements of policy, and 
rules of agency organization, procedure, or practice are excepted from 
the requirements of notice and comment rulemaking.
    We considered publishing a proposed notice to provide a period for 
public comment. However, we may waive that procedure if we find, for 
good cause, that prior notice and comment are impracticable, 
unnecessary, or contrary to the public interest. The statute 
establishes the time period for which the premium rates will apply, and 
delaying publication of the Part B premium rate such that it would not 
be published before that time would be contrary to the public interest. 
Moreover, we find that notice and comment are unnecessary because the 
formulas used to calculate the Part B premiums are statutorily 
directed. Therefore, we find good cause to waive publication of a 
proposed notice and solicitation of public comments.

(Catalog of Federal Domestic Assistance Program No. 93.774, 
Medicare--Supplementary Medical Insurance Program)

    Dated: November 15, 2012.
Marilyn Tavenner,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Approved: November 15, 2012.
Kathleen Sebelius,
Secretary. Department of Health and Human Services.
[FR Doc. 2012-28275 Filed 11-16-12; 11:15 am]
BILLING CODE 4120-01-P