AARP Chief Executive Officer William D. Novelli addressed the chair and ranking members of the Finance, Ways and Means, and Energy and Commerce committees in the following letter as a response to the recently-announced Part B premium increase.

The recent announcement that Medicare beneficiaries will pay 17 percent more per month for their Part B premium in 2005 is alarming. This $11.60 premium increase is the largest in the program's history and comes at a time when older Americans are already paying an unprecedented amount out-of-pocket for their health care.

The Medicare premium increase is linked to rising costs throughout the health care system. This year's large increase is primarily due to the enactment of significant provider payment increases — for physicians, rural health providers, therapists and private Medicare Advantage health plans. In addition, actual program spending for Part B has been higher than projected, and there has been a decline in the Part B Trust Fund reserves.

Older Americans are willing to pay their fair share for Medicare. However, beneficiaries cannot afford to shoulder continued large increases in out-of-pocket spending on health care. Older Americans are already spending a considerable portion of their income on health care costs. On average, Medicare beneficiaries age 65 and over (living in the community) are projected to have spent 22 percent of their income, or $3,455, on out-of-pocket health care costs in 2003. This estimate does not include the cost of home care and long-term nursing home care.

The 2005 premium and coinsurance increases cannot be viewed in a vacuum. These changes come on top of other increases that will have a tremendous impact on beneficiary out-of-pocket spending, including the scheduled increase in the Part B deductible.

AARP recognizes the importance of paying the providers who treat Medicare patients fairly. But each time Congress increases Part B provider reimbursement, beneficiaries pay higher premiums and coinsurance. Beneficiaries are increasingly facing their own access problem. If Medicare premiums and cost sharing continue to increase as a result of provider payment increases, beneficiaries might not be able to afford the care they need. AARP strongly urges you to consider ways to prevent further increases in beneficiary premiums if provider payments are increased again.

Older Americans, especially those living on fixed incomes, depend on their Social Security check. Most count on their Social Security COLA to keep them from falling further behind, but increasingly see their entire COLA consumed or exceeded by rising health care costs. Next year's COLA, expected to be less than 2.5 percent, pales in comparison to the 17 percent hike in the Part B premium. In order to protect beneficiaries' Social Security income, we urge the adoption of legislation to better prevent erosion of the COLA due to health cost increases.

We must as a nation focus greater attention on holding down health care costs. We also know from past experience that Medicare costs cannot be viewed in isolation, but must be addressed in the context of the entire health care system. We would be pleased to work with you to enact such measures.