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History of Part B

From the early 1980s, Congress regularly voted to set Part B premiums at a level to cover 25% of program costs, in effect overriding the COLA limitation. The 25% provisions first became effective January 1, 1984, with general revenues covering the remaining 75% of Part B program costs. Premiums increased in 1989 because of the Medicare Catastrophic Coverage Act of 1988, which added a catastrophic coverage premium to the Part B premium. The act was repealed in November 1989, and the Part B premium for 1990 fell as a result.

Congress returned to the general approach of having premiums cover 25% of program costs in the Omnibus Budget Reconciliation Act of 1990. However, OBRA 90 set specific dollar figures, rather than a percentage, in law for Part B premiums for the years 1991- 1995. These dollar figures reflected Congressional Budget Office estimates of what 25% of program costs would be over the five-year period. However, program costs grew more slowly than anticipated, in part due to subsequent legislative changes. As a result, the 1995 premium of $46.10 represented 31,5% of Medicare Part B program costs.

The Omnibus Budget Reconciliation Act of 1993 extended the policy of setting the Part B premium at a level to cover 25% of program costs for the years 1996-1998. As was the case prior to 1991, a percentage rather than a fixed dollar figure was used, which meant that the 1996 premium ($42.50) and the 1997 premium ($43.80) were lower than the 1995 premium ($46.10). The Balanced Budget Act of 1997 permanently set the premium at 25% of program costs so that, generally speaking, premiums rise or fall with Part B program costs.

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