United States Government Accountability Office

Washington, DC 20548 

November 17, 2006 

The Honorable Charles E. Grassley 

Chairman 

The Honorable Max Baucus 

Ranking Minority Member 

Committee on Finance 

United States Senate 

Subject: Social Security Administration: Short Time Frame and Workload Challenges Could Affect 

Timely Implementation of Income-Based Medicare Part B Premiums 

Beginning January 1, 2007, the premiums for the Medicare Part B Supplementary Medical Insurance 

program will be based on income, which will raise the premiums for approximately 1.65 million higherincome beneficiaries to as much as 80 percent of the full cost over the 3-year phase-in period. This 

change, which may be unknown to some beneficiaries, will affect single individuals with incomes over 

$80,000 and married couples who file jointly with incomes over $160,000. Medicare Part B is a 

voluntary program administered by the Centers for Medicare & Medicaid Services (CMS) that covers 

doctors’ services, certain outpatient services, and other care. Currently, Medicare Part B beneficiaries 

generally pay a flat premium of 25 percent (the standard monthly premium) of the cost of the program,

with the remaining 75 percent subsidized by the federal government. While CMS administers the 

program, the Social Security Administration (SSA) is responsible for determining and assessing 

Medicare Part B income-based premiums once CMS has set the standard premium amount for the year. 

To better understand how SSA is implementing such premiums, the Senate Committee on Finance 

requested that we review the process that SSA has established to determine and assess the new 

premiums. 

Enclosed (Enclosure I) is an updated version of the briefing that we provided to your staff on November 

7, 2006 describing the status of SSA’s implementation efforts as of November 6, 2006. At this writing, 

SSA is still in the process of calculating premiums and expects to finish this task by mid-November. 

Once the calculations are completed, SSA will include the new premium in its cost of living adjustment 

notices, which will be mailed to affected beneficiaries in late November. Beneficiaries will have 60 days 

after receiving the notice of the premium increase to file an appeal. However, they may also request a 

new determination without filing an appeal if they have experienced a life changing event that results in 

a significant reduction in their income, or they have more recent, amended or corrected tax return 

information. Time frames for requesting new determinations vary depending on the reason that 

beneficiaries cite for making such a request. SSA is conducting a number of training efforts to assist 

staff in dealing with inquiries from affected beneficiaries. For field offices with a high volume of 

affected beneficiaries, SSA plans to move the resulting work as needed to offices with fewer affected 

beneficiaries. Despite SSA’s planning efforts, there are various issues that could affect its 

implementation of income-based premiums. For example, SSA has about a month to determine and 

Page 1 GAO-07-228R Income-Based Medicare Part B Premiums
assess the premiums, and faces an anticipated field office workload increase when beneficiaries contact 

them for help in understanding the higher premiums or challenging the premium assessment. 

To address the Committee’s request, we reviewed relevant statutes and program regulations on incomebased premiums, interviewed officials at SSA, the Internal Revenue Service (IRS), and CMS, and 

obtained supporting documentation on their plans for implementing the income-based premiums. We 

evaluated these plans based on the time frame established in the law for SSA’s receipt of income-based 

data from the IRS and SSA’s schedule to implement the income-based premiums by the effective date. 

We also interviewed managers and staff at various SSA field offices and spoke with Medicare advocacy 

groups. We did not assess the procedures used to test IRS and SSA systems for implementing the 

income-based premiums. We performed our work between May 2006 and November 2006 in 

accordance with generally accepted government auditing standards. 

We provided a draft of the briefing to the Commissioner of the Social Security Administration on 

November 9, 2006. In response to our statement that beneficiaries might not be aware of the incomebased premiums, SSA noted that this information was provided in the 2007 “Medicare and You” 

handbook, which was sent to all Medicare beneficiaries by the end of October 2006. SSA also noted that 

the current hiring freeze, which could affect SSA’s ability to respond to income-based premium

inquiries, was a result of the continuing resolution under which SSA is currently operating. We

considered these comments, as well as SSA’s technical comments, and made changes as appropriate. 

We have included the agency’s comments in Enclosure II. We are sending copies of this briefing to the 

Commissioner of Social Security, the Commissioner of Internal Revenue, and the Secretary of Health 

and Human Services, and other interested parties. Copies will also be made available to others upon 

request. In addition, the report will be available at no charge on GAO’s Web site at http://www.gao.gov. 

Please contact us at the number shown below if you or your staff have any questions about this report. 

Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last 

page of this briefing. 

Sincerely yours, 

Barbara D. Bovbjerg 

Director, Education, Workforce, 

and Income Security Issues 

(202) 512-7215 

bovbjergb@gao.gov 

Enclosures 

(130630) 

Page 2 GAO-07-228R Income-Based Medicare Part B Premiums
Enclosure I: Briefing Slides 

Social Security Administration: Short Time Frame and 

Workload Challenges Could Affect Timely 

Implementation of Income-based Medicare Part B 

Premiums

Briefing to Committee on Finance 

U.S. Senate

November 7, 2006

Page 3 GAO-07-228R Income-Based Medicare Part B Premiums
Enclosure I: Briefing Slides 

Introduction

• Medicare Part B is a voluntary program administered by the Centers for Medicare & 

Medicaid Services (CMS) within the Department of Health and Human Services 

(HHS). The program covers doctors’ services, certain outpatient services, and 

other care. Medicare is generally available to individuals 65 and older, people of 

any age with permanent kidney failure, and people with certain disabilities after a 

24-month waiting period.

• The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 

requires that the Social Security Administration (SSA) determine Medicare Part B 

premiums based on beneficiaries’ income and assess the new premiums beginning 

January 1, 2007. As a result, premiums for some higher-income beneficiaries will 

increase over 3 years to as much as 80 percent of the full program costs. SSA 

generally withholds Part B premiums from beneficiaries’ Social Security checks. 

• The Senate Committee on Finance requested that we review the process that SSA 

has established to determine and assess the new premiums. 

Page 4 GAO-07-228R Income-Based Medicare Part B Premiums
Enclosure I: Briefing Slides 

Methodology

• We reviewed the Medicare Prescription Drug, Improvement, and Modernization Act of

2003 and SSA’s regulation to gain an understanding of SSA’s responsibilities and 

procedures for determining income-based premiums.

• We analyzed relevant documentation and interviewed officials with:

• SSA regarding the agency’s policies for calculating and notifying beneficiaries of

their assessed premiums;

• Five selected SSA field offices and officials at various Medicare advocacy

organizations to gain their perspectives on the implementation of income-based 

premiums; 

• Internal Revenue Service (IRS) about SSA’s access to income tax data needed

to determine the premiums and data transfer issues; and

• SSA and CMS regarding their efforts to inform the beneficiary community about

the implementation of income-based premiums.

Page 5 GAO-07-228R Income-Based Medicare Part B Premiums
Enclosure I: Briefing Slides 

Methodology, continued

• We did not assess the IRS and SSA procedures used to test their systems for 

implementing the income-based premiums.

• We conducted our work from May to November 2006 in accordance with generally

accepted government auditing standards.

Page 6 GAO-07-228R Income-Based Medicare Part B Premiums
Enclosure I: Briefing Slides 

New Law Will Make Medicare Part B Premiums

Income-based

• In general, beneficiaries pay premiums of 25 percent (e.g., the standard monthly

premium) of estimated Medicare Part B program costs; the federal government

subsidizes the remaining 75 percent from Treasury’s general revenue.

• Starting in January 2007, the federal government will reduce its contribution to Part B

premiums for beneficiaries with modified adjusted gross incomes* of over $80,000 for 

single tax filers and over $160,000 for married tax filers who file jointly in accordance

with the Medicare Prescription Drug, Improvement, and Modernization Act of 2003.

This subsidy reduction, known as the Income Related Monthly Adjustment Amount, will be phased in on a graduated basis over 3 years, from 2007 to 2009. By 2009, affected beneficiaries will pay between 35 and 80 percent of their full Part B premium

cost.

*Modified adjusted gross income is adjusted gross income plus certain tax-exempt interest and other income.

Page 7 GAO-07-228R Income-Based Medicare Part B Premiums
Enclosure I: Briefing Slides 

Premiums for High Income Beneficiaries Will

Rise Over Three Years

Table 1: Medicare Part B Premiums by Income Bracket, 2007-2009

(all amounts are shown in 2007 dollars; income categories and 

premiums are expected to rise further in 2008 and 2009)*

$80,001-$100,000 $160,001-$200,000 $105.80 $118.60 $130.90

$299.20

$243.10

$187.00

$93.50

2009

$231.30

$193.70

$156.10

$93.50

2008

$161.40

$142.90

$124.40

$93.50

2007

Monthly Premium by Year

(all figures are rounded to nearest tenth)

$150,001-$200,000 $300,001-$400,000

more than $200,000 more than $400,000

$80,000 and under $160,000 and under

$100,001-$150,000 $200,001-$300,000

Single Married Couple**

Modified Adjusted Gross Income Category

Source: GAO analysis using the announced 2007 Medicare Part B premiums. We extrapolated the premiums for 2008 and 

2009 based on 2007 premium amounts, without estimating increases in Part B costs due to inflation and medical cost 

adjustments, which are not yet known. 

*The income brackets and premiums above reflect the amounts that the government plans to use for 2007. We used 2007 

amounts to show the effect that legislated adjustments would have on the premiums of beneficiaries at various income levels 

in 2008 and 2009. Beginning in 2008, the income brackets will be adjusted by the change in the Consumer Price Index for 

urban consumers, rounded to the nearest $1,000. 

**Married couples who filed taxes separately, and who lived together at any time in the tax year, are assessed premiums 

based on three different Modified Adjusted Gross Income Categories: 1) $80,000 and under, 2) $80,001-$120,000, and 

3) more than $120,000. The premiums for categories 2 and 3 will be those amounts listed above for the married couple 

categories of $300,001-$400,000 and more than $400,000, respectively. 

Page 8 GAO-07-228R Income-Based Medicare Part B Premiums
Enclosure I: Briefing Slides 

Income-based Premiums Will Affect Many

Beneficiaries and Slightly Increase

Medicare Revenues

• The Medicare Trustees reported in May 2006 that the rapid growth of program costs 

will generate steadily increasing demands for both higher premiums and more general

revenue. Income-based premium payments are intended as one way to address the 

fiscal challenges facing Medicare by requiring beneficiaries over the designated

income level to contribute more to the cost of their benefits. 

• Of the 40.7 million projected Medicare Part B beneficiaries in 2007, about 1.65 million 

beneficiaries will pay a higher income-based premium. Some of these beneficiaries 

may not yet be aware they will be affected by the income-based premium.

• CMS estimates that between fiscal years 2007 and 2011, the income-based premium

will increase Medicare revenue by $7.7 billion. In 2005, Medicare Part B expenditures 

totaled $151.5 billion; $35.9 billion (roughly 24 percent) was financed by enrollee

premiums.*

* The remaining expenditures were financed by contributions from the federal government and from interest earned from

investments.

Page 9 GAO-07-228R Income-Based Medicare Part B Premiums
Enclosure I: Briefing Slides 

SSA Will Calculate Income-based 

Premiums and Perform Related Tasks

• Regarding the income-based premium, SSA is responsible for:

• calculating the premium amount for affected beneficiaries based on 2-year old tax data, 

provided by IRS as of October 15, or 3-year old tax data if 2-year old tax data are unavailable 

(for the 2007 adjustment, for example, SSA is using 2005 tax-year data available as of October 

15, 2006, or 2004 tax-year data if 2005 data are not available); 

• informing beneficiaries of the amount of their new premium; and

• deciding on requests from beneficiaries to recalculate the income-based premium based on

evidence of life-changing events, or under certain other limited circumstances. 

• IRS provided SSA with 2005 tax-year data for approximately 93 percent of the 1.65 

million affected beneficiaries, and 2004 tax-year data for the remaining beneficiaries.

• SSA estimates that implementing income-based premiums will cost the agency an 

additional $200 million in administrative expenses between fiscal years 2006 and 2010.

Page 10 GAO-07-228R Income-Based Medicare Part B Premiums
Enclosure I: Briefing Slides 

SSA’s Regulation on Income-based Premiums

Received Seven Public Comments

• On March 3, 2006, SSA published a proposed regulation to implement income-based

premiums and received seven comments before the comment period closed on May

2, 2006. The comments included, among others, a concern about the government

withholding a larger share of Part B premiums from Social Security benefits, plus 

more specific comments about:

• the need for more clarity on:

• what qualifies as a significant income reduction because of major life-changing events

and the evidence required to substantiate such events; and

• the circumstances under which beneficiaries may request a recalculation of their

premium adjustment; and

• the short time frame that beneficiaries have to request a recalculation of premium increases 

before they go into effect. 

• On October 27, 2006 SSA published the final regulation in the Federal Register. SSA

restructured the regulation slightly to clarify the procedures that will be applied to

calculate the amount of premium adjustments.

Page 11 GAO-07-228R Income-Based Medicare Part B Premiums
Enclosure I: Briefing Slides 

Beneficiaries May Request a Recalculation of 

Their Premium 

Beneficiaries may request a recalculation of their premium adjustment by submitting a 

request for a new initial determination or a request for reconsideration.

• Beneficiaries may request a new initial determination under the following four circumstances:

• They have more recent tax data than those used in SSA’s premium calculation;

• They have amended the tax return that SSA used in its premium calculation;

• They have proof of a corrected tax return; or

• They have experienced a major life-changing event, which significantly reduced their income.*

• Beneficiaries may request a reconsideration if they question the accuracy of SSA’s calculation of

the premium adjustment. 

* SSA’s regulation recognizes that, depending on the timing of a life-changing event, more recent tax information may

* not be available to substantiate a reduction in income. In those cases, SSA will accept a signed statement describing

*the reduction in income and ask the beneficiary to provide the tax return when it is available.

Page 12 GAO-07-228R Income-Based Medicare Part B Premiums
Enclosure I: Briefing Slides 

Beneficiaries May Request a Recalculation of 

Their Premium, continued

• There are different time frames for requesting a recalculation:

• For new initial determinations, the time frames vary depending on the circumstance that the

beneficiary cites in making the request. For example, beneficiaries who experience a

major life-changing event generally have until the end of the calendar year to request a 

new initial determination. However, if the event occurs in the last three months of the year,

the deadline is extended until March 31 of the following year.

• For reconsiderations, a beneficiary must file a request within 60 days after receiving SSA’s

notice of the premium adjustment. However, the time frame may be extended under 

certain circumstances, such as a death or serious illness in the beneficiary’s family or loss 

of records due to fire or other accidental cause.

• SSA charges the administrative cost of processing new initial determinations and 

reconsiderations to the Federal Supplementary Medical Insurance Trust Fund.

Page 13 GAO-07-228R Income-Based Medicare Part B Premiums
Enclosure I: Briefing Slides 

Beneficiaries May Appeal SSA’s Decisions

• If beneficiaries are dissatisfied with the results of SSA’s reconsideration, they may

file an appeal with the Department of Health and Human Services’ Office of

Medicare Hearings and Appeals. During this process, beneficiaries may request a 

hearing before an administrative law judge. Beneficiaries may file such an appeal

only if they have received a decision on their reconsideration request from SSA.

• If beneficiaries are dissatisfied with the administrative law judge’s decision, they may

further appeal to the Department of Health and Human Services’ Medicare Appeals

Council. After this, dissatisfied beneficiaries may be entitled to appeal to a federal

district court. 

Page 14 GAO-07-228R Income-Based Medicare Part B Premiums
Enclosure I: Briefing Slides 

SSA and CMS Are Conducting Efforts to 

Inform Affected Beneficiaries

• SSA and CMS have conducted several efforts to educate beneficiaries who could be 

affected by the upcoming income-based premiums. These efforts consist of the 

following activities: 

• CMS’s announcement of the Medicare Part B 2007 premiums in a September 2006 press 

release;

• SSA and CMS’s collaborative work to describe income-based premiums in the Medicare 

initial enrollment package for individuals about to turn 65 or who become eligible for 

Medicare based on their disability status, and the 2007 “Medicare and You” handbook, which

CMS sends to all Medicare beneficiaries by the end of October of each year; and

• SSA plans to educate tax preparers and attorneys who may be assisting affected

beneficiaries in preparing tax returns, beginning in mid-November. 

• SSA plans to include personalized information on the 2007 income-based premium

adjustment in its annual Cost of Living Adjustment notice that will be sent to each

affected beneficiary in late November. According to SSA officials, while this notice will

provide information on the 2007 premium adjustment and how it can be contested, it

will not inform beneficiaries of the impending increases in 2008 and 2009. While SSA

has information on the future year increases on its Web site, it is unknown how many

beneficiaries are aware of this information.

Page 15 GAO-07-228R Income-Based Medicare Part B Premiums
Enclosure I: Briefing Slides 

Remaining Time Frame to Implement 

Income-based Premiums Is Short

• SSA will have about a month to complete the following activities necessary to

implement income-based premiums by January 1, 2007: 

• Electronically calculate premiums using tax data from IRS between the last week of October 

and mid-November;

• Provide specialized training to SSA’s 800-number service representatives and field office

staff beginning in late October;

• Provide field offices with information on the number of affected beneficiaries in their area for

workload planning by mid-November;

• Electronically incorporate premium information into annual Cost of Living Adjustment notices 

for affected beneficiaries by November 18; and

• Mail the notices in late November.

• In late October 2006, IRS transferred October 15 tax data to SSA on Medicare Part B

beneficiaries in accordance with the law. 

• At this writing, SSA is calculating the premiums for affected beneficiaries and is

planning to mail notices to inform them of their new premiums by the end of

November.

Page 16 GAO-07-228R Income-Based Medicare Part B Premiums
Enclosure I: Briefing Slides 

Remaining Time Frame to Implement Incomebased Premiums is Short, continued

• In order to prevent any delays in mailing premium notices, SSA officials told us that

they tested their systems for transferring data with both the IRS and the vendors 

under contract to print and mail the notices. IRS and SSA officials told us that their 

three tests of simulated data have been successful. Furthermore, SSA told us that the 

tests with the vendors were also successful.

• Should problems occur in calculating premiums and preparing notices, SSA officials

told us that they plan to rearrange agency work priorities to assure that these tasks 

are completed on time. 

• SSA may move work if certain field offices are disproportionately affected by visits and

calls from beneficiaries with questions about their income-based premiums. SSA

estimates receiving: • 337,000 inquiries;

• 35,000 change of income requests; and 

• 141,000 major life-changing event requests.

While these estimates are for fiscal year 2007, SSA expects that the bulk of this

workload will take place between November 2006 and February 2007.

Page 17 GAO-07-228R Income-Based Medicare Part B Premiums
Enclosure I: Briefing Slides 

Several Factors Could Affect SSA’s Timely

Implementation of Income-based Premiums

SSA’s timely implementation of income-based premiums could be affected by:

• The short time frame in which SSA has to perform various tasks for issuing premium notices by

the end of November; 

• SSA staff shortages and the current hiring freeze could make it difficult for 800-number service

representatives and field office staff to respond to increased call and visitor volumes, resulting 

from beneficiaries questioning or challenging their premium determination or requesting a

premium recalculation; and

• Concurrent year-end activities, such as referring beneficiaries to CMS who contact SSA with

questions about Medicare Part D during the “open season” for beneficiaries who wish to switch

their drug plan, processing applications for the Part D low-income subsidy, and processing other 

SSA workloads during this period.

Page 18 GAO-07-228R Income-Based Medicare Part B Premiums
Enclosure II: Comments from the Social Security Administration 

Page 19 GAO-07-228R Income-Based Medicare Part B Premiums
Enclosure II: Comments from the Social Security Administration 

Page 20 GAO-07-228R Income-Based Medicare Part B Premiums
Enclosure II: Comments from the Social Security Administration 

Page 21 GAO-07-228R Income-Based Medicare Part B Premiums
Enclosure III: GAO Contact and Staff Acknowledgments 

GAO Contact Barbara Bovbjerg (202) 512-7215 or bovbjergb@gao.gov

Acknowledgments The following team members made key contributions to this report: Blake 

Ainsworth, Assistant Director; Jeff Bernstein; Kyle Browning; Mary Crenshaw; 

Rosamond Katz; Sheila McCoy; and Paul Wright. 

Page 22 GAO-07-228R Income-Based Medicare Part B Premiums
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