Phil Galewitz

After nearly 2 years in operation and millions of dollars spent in development, the small business health insurance exchange created by the Affordable Care Act is struggling to catch on.

Nationally, about 85,000 people, from 11,000 small businesses, have coverage through the online marketplace known as the Small Business Health Options Program, or SHOP, according to the latest federal data released in May. Those totals do not include employers that began coverage in 2014 and have not yet renewed their coverage through HealthCare.gov for 2015.

That’s less than 1% of people with coverage in the U.S. small group insurance market that in 2013 had about 16.7 million people enrolled in health plans, reported Mark Farrah Associates, a market data firm.

monkeybusinessimages/Thinkstock.com

The Congressional Budget Office in January estimated 1 million people would enroll for coverage through SHOP in 2015. No one expected the SHOP exchange to have a large enrollment, but industry officials say its early response has been substantially smaller than expected.

“When you look at the cost and look at the take up rate, it certainly raises questions” about whether SHOP has been worthwhile, said Alissa Fox, senior vice president of the Blue Cross Blue Shield Association. “We never thought the business equation made sense.”

Employers with fewer than 50 full-time workers are eligible to buy coverage on SHOP. The federal government even offers businesses an incentive, a tax credit worth up to half of an employer’s share of their workers’ premiums. Among the conditions: The firm must employ fewer than 25 workers and their average salary cannot exceed $50,000. The credit is hardly used in high-cost areas of the country where salaries are higher.

Similar to the health insurance marketplace for individuals, the federal government operates the SHOP exchange in 34 states, and 16 other states plus the District of Columbia run their own small business exchanges. The state exchanges also capture a small share of the small business market, based on more current figures compiled by Kaiser Health News. As of early October, five state-run SHOP exchanges – Idaho, Kentucky, Maryland, Minnesota, and Washington – had sold coverage to fewer than 200 employers. New York and California have the highest enrollments, and together those two states account for about 6,500 employers and nearly 50,000 people.

The Obama administration hoped SHOP would make it easier and cheaper for small employers to offer coverage to employees and for their workers to have a choice of plans.

Unlike the federal- and state-run health insurance exchanges for individuals that limit sign-up to a certain period during the year, the SHOP exchanges allow companies to enroll at any time.

But several factors account for the paltry enrollment in SHOP, say insurance brokers, insurers, and state officials. Brokers say SHOP has fewer health plans and more expensive coverage policies than can be purchased outside the exchange. Several states only have one insurer on their SHOP exchange, including Alabama, Tennessee, North Carolina and Nebraska, according to consulting firm Leavitt Partners.

Many small employers have stuck with plans they purchased outside SHOP because the Obama administration gave them the option to remain with their existing policies until 2017. That enabled employers to stay in plans that don’t meet all the new requirements of the health law, including so-called “essential health benefits.” These additional benefits can drive up the cost of policies, making it harder for the SHOP plans to compete.

Another factor that slowed enrollment in SHOP has been software problems in several states that made it hard for employers and employees to sign up. In addition, the SHOP exchange run by the federal government launched in October 2013 was only available if employers contacted an agent or broker. Its full website was not running until fall 2014.

“With all that stacked up against it, it does not surprise me that the numbers are so low,” said Kevin Lucia, a research professor at Georgetown University Health Policy Institute, who studied the rollout.

Kevin Counihan, the Obama administration’s top insurance exchange official, acknowledges SHOP will only be a “niche product” and most policies will still be sold outside the marketplace. Still, he expects as more employers and insurance brokers learn about SHOP, that its enrollment will grow. Asked in an interview about low enrollment, he said: “It doesn’t really bother me … something like this takes time.”

Mr. Counihan said the key will be to get more brokers interested in selling the SHOP plans.

But many brokers say they don’t see the value of SHOP since it typically offers fewer options than outside the exchanges. “There really is no reason to go to SHOP unless you qualify for the tax credits,” said Ken Stevenson, a Tallahassee, Fla., insurance agent. Four Florida insurers sell on SHOP, fewer than half available in the state. Florida Blue, the state’s largest insurer, said less than 1% of its small group policies are sold on the SHOP.

Other brokers say enrollment on SHOP is more confusing than working directly with carriers. “It’s difficult to get through the website, and it’s a lot easier for employers to pick up the phone and call a broker than spend 4 hours on the SHOP site,” said Alan Schulman, a Bethesda, Md., insurance agent.

The SHOP was set to expand to open for businesses with up to 100 employees in 2016, but Congress and President Obama rescinded that requirement in November.

One company to get the tax credit is Paloma Clothing, a women’s clothing store in Portland, Ore. Co-owner Mike Roach said he signed up for SHOP plan last year on the recommendation of his insurance agent. The credit saved his company about $7,000. That savings, he said, made it affordable for Paloma to keep its share of its employees’ monthly insurance premiums at 85%.

“The tax credit saved us from the terrific, morale-crushing option of decreasing our health insurance coverage for our employees,” he said. Eight of the store’s 15 employees signed up for the SHOP policy sold by Moda Health. Most pay about $45 a month for their share of the premium.

Mr. Roach said he is thankful for the health law. “Wow, finally someone did something to help small businesses deal with the rising cost of providing employees health insurance,” he said. “For so many years … no one did anything but feel sorry for you.”

After nearly 2 years in operation and millions of dollars spent in development, the small business health insurance exchange created by the Affordable Care Act is struggling to catch on.

Nationally, about 85,000 people, from 11,000 small businesses, have coverage through the online marketplace known as the Small Business Health Options Program, or SHOP, according to the latest federal data released in May. Those totals do not include employers that began coverage in 2014 and have not yet renewed their coverage through HealthCare.gov for 2015.

That’s less than 1% of people with coverage in the U.S. small group insurance market that in 2013 had about 16.7 million people enrolled in health plans, reported Mark Farrah Associates, a market data firm.

monkeybusinessimages/Thinkstock.com

The Congressional Budget Office in January estimated 1 million people would enroll for coverage through SHOP in 2015. No one expected the SHOP exchange to have a large enrollment, but industry officials say its early response has been substantially smaller than expected.

“When you look at the cost and look at the take up rate, it certainly raises questions” about whether SHOP has been worthwhile, said Alissa Fox, senior vice president of the Blue Cross Blue Shield Association. “We never thought the business equation made sense.”

Employers with fewer than 50 full-time workers are eligible to buy coverage on SHOP. The federal government even offers businesses an incentive, a tax credit worth up to half of an employer’s share of their workers’ premiums. Among the conditions: The firm must employ fewer than 25 workers and their average salary cannot exceed $50,000. The credit is hardly used in high-cost areas of the country where salaries are higher.

Similar to the health insurance marketplace for individuals, the federal government operates the SHOP exchange in 34 states, and 16 other states plus the District of Columbia run their own small business exchanges. The state exchanges also capture a small share of the small business market, based on more current figures compiled by Kaiser Health News. As of early October, five state-run SHOP exchanges – Idaho, Kentucky, Maryland, Minnesota, and Washington – had sold coverage to fewer than 200 employers. New York and California have the highest enrollments, and together those two states account for about 6,500 employers and nearly 50,000 people.

The Obama administration hoped SHOP would make it easier and cheaper for small employers to offer coverage to employees and for their workers to have a choice of plans.

Unlike the federal- and state-run health insurance exchanges for individuals that limit sign-up to a certain period during the year, the SHOP exchanges allow companies to enroll at any time.

But several factors account for the paltry enrollment in SHOP, say insurance brokers, insurers, and state officials. Brokers say SHOP has fewer health plans and more expensive coverage policies than can be purchased outside the exchange. Several states only have one insurer on their SHOP exchange, including Alabama, Tennessee, North Carolina and Nebraska, according to consulting firm Leavitt Partners.

Many small employers have stuck with plans they purchased outside SHOP because the Obama administration gave them the option to remain with their existing policies until 2017. That enabled employers to stay in plans that don’t meet all the new requirements of the health law, including so-called “essential health benefits.” These additional benefits can drive up the cost of policies, making it harder for the SHOP plans to compete.

Another factor that slowed enrollment in SHOP has been software problems in several states that made it hard for employers and employees to sign up. In addition, the SHOP exchange run by the federal government launched in October 2013 was only available if employers contacted an agent or broker. Its full website was not running until fall 2014.

“With all that stacked up against it, it does not surprise me that the numbers are so low,” said Kevin Lucia, a research professor at Georgetown University Health Policy Institute, who studied the rollout.

Kevin Counihan, the Obama administration’s top insurance exchange official, acknowledges SHOP will only be a “niche product” and most policies will still be sold outside the marketplace. Still, he expects as more employers and insurance brokers learn about SHOP, that its enrollment will grow. Asked in an interview about low enrollment, he said: “It doesn’t really bother me … something like this takes time.”

Mr. Counihan said the key will be to get more brokers interested in selling the SHOP plans.

But many brokers say they don’t see the value of SHOP since it typically offers fewer options than outside the exchanges. “There really is no reason to go to SHOP unless you qualify for the tax credits,” said Ken Stevenson, a Tallahassee, Fla., insurance agent. Four Florida insurers sell on SHOP, fewer than half available in the state. Florida Blue, the state’s largest insurer, said less than 1% of its small group policies are sold on the SHOP.

Other brokers say enrollment on SHOP is more confusing than working directly with carriers. “It’s difficult to get through the website, and it’s a lot easier for employers to pick up the phone and call a broker than spend 4 hours on the SHOP site,” said Alan Schulman, a Bethesda, Md., insurance agent.

The SHOP was set to expand to open for businesses with up to 100 employees in 2016, but Congress and President Obama rescinded that requirement in November.

One company to get the tax credit is Paloma Clothing, a women’s clothing store in Portland, Ore. Co-owner Mike Roach said he signed up for SHOP plan last year on the recommendation of his insurance agent. The credit saved his company about $7,000. That savings, he said, made it affordable for Paloma to keep its share of its employees’ monthly insurance premiums at 85%.

“The tax credit saved us from the terrific, morale-crushing option of decreasing our health insurance coverage for our employees,” he said. Eight of the store’s 15 employees signed up for the SHOP policy sold by Moda Health. Most pay about $45 a month for their share of the premium.

Mr. Roach said he is thankful for the health law. “Wow, finally someone did something to help small businesses deal with the rising cost of providing employees health insurance,” he said. “For so many years … no one did anything but feel sorry for you.”

After nearly 2 years in operation and millions of dollars spent in development, the small business health insurance exchange created by the Affordable Care Act is struggling to catch on.

Nationally, about 85,000 people, from 11,000 small businesses, have coverage through the online marketplace known as the Small Business Health Options Program, or SHOP, according to the latest federal data released in May. Those totals do not include employers that began coverage in 2014 and have not yet renewed their coverage through HealthCare.gov for 2015.

That’s less than 1% of people with coverage in the U.S. small group insurance market that in 2013 had about 16.7 million people enrolled in health plans, reported Mark Farrah Associates, a market data firm.

monkeybusinessimages/Thinkstock.com

The Congressional Budget Office in January estimated 1 million people would enroll for coverage through SHOP in 2015. No one expected the SHOP exchange to have a large enrollment, but industry officials say its early response has been substantially smaller than expected.

“When you look at the cost and look at the take up rate, it certainly raises questions” about whether SHOP has been worthwhile, said Alissa Fox, senior vice president of the Blue Cross Blue Shield Association. “We never thought the business equation made sense.”

Employers with fewer than 50 full-time workers are eligible to buy coverage on SHOP. The federal government even offers businesses an incentive, a tax credit worth up to half of an employer’s share of their workers’ premiums. Among the conditions: The firm must employ fewer than 25 workers and their average salary cannot exceed $50,000. The credit is hardly used in high-cost areas of the country where salaries are higher.

Similar to the health insurance marketplace for individuals, the federal government operates the SHOP exchange in 34 states, and 16 other states plus the District of Columbia run their own small business exchanges. The state exchanges also capture a small share of the small business market, based on more current figures compiled by Kaiser Health News. As of early October, five state-run SHOP exchanges – Idaho, Kentucky, Maryland, Minnesota, and Washington – had sold coverage to fewer than 200 employers. New York and California have the highest enrollments, and together those two states account for about 6,500 employers and nearly 50,000 people.

The Obama administration hoped SHOP would make it easier and cheaper for small employers to offer coverage to employees and for their workers to have a choice of plans.

Unlike the federal- and state-run health insurance exchanges for individuals that limit sign-up to a certain period during the year, the SHOP exchanges allow companies to enroll at any time.

But several factors account for the paltry enrollment in SHOP, say insurance brokers, insurers, and state officials. Brokers say SHOP has fewer health plans and more expensive coverage policies than can be purchased outside the exchange. Several states only have one insurer on their SHOP exchange, including Alabama, Tennessee, North Carolina and Nebraska, according to consulting firm Leavitt Partners.

Many small employers have stuck with plans they purchased outside SHOP because the Obama administration gave them the option to remain with their existing policies until 2017. That enabled employers to stay in plans that don’t meet all the new requirements of the health law, including so-called “essential health benefits.” These additional benefits can drive up the cost of policies, making it harder for the SHOP plans to compete.

Another factor that slowed enrollment in SHOP has been software problems in several states that made it hard for employers and employees to sign up. In addition, the SHOP exchange run by the federal government launched in October 2013 was only available if employers contacted an agent or broker. Its full website was not running until fall 2014.

“With all that stacked up against it, it does not surprise me that the numbers are so low,” said Kevin Lucia, a research professor at Georgetown University Health Policy Institute, who studied the rollout.

Kevin Counihan, the Obama administration’s top insurance exchange official, acknowledges SHOP will only be a “niche product” and most policies will still be sold outside the marketplace. Still, he expects as more employers and insurance brokers learn about SHOP, that its enrollment will grow. Asked in an interview about low enrollment, he said: “It doesn’t really bother me … something like this takes time.”

Mr. Counihan said the key will be to get more brokers interested in selling the SHOP plans.

But many brokers say they don’t see the value of SHOP since it typically offers fewer options than outside the exchanges. “There really is no reason to go to SHOP unless you qualify for the tax credits,” said Ken Stevenson, a Tallahassee, Fla., insurance agent. Four Florida insurers sell on SHOP, fewer than half available in the state. Florida Blue, the state’s largest insurer, said less than 1% of its small group policies are sold on the SHOP.

Other brokers say enrollment on SHOP is more confusing than working directly with carriers. “It’s difficult to get through the website, and it’s a lot easier for employers to pick up the phone and call a broker than spend 4 hours on the SHOP site,” said Alan Schulman, a Bethesda, Md., insurance agent.

The SHOP was set to expand to open for businesses with up to 100 employees in 2016, but Congress and President Obama rescinded that requirement in November.

One company to get the tax credit is Paloma Clothing, a women’s clothing store in Portland, Ore. Co-owner Mike Roach said he signed up for SHOP plan last year on the recommendation of his insurance agent. The credit saved his company about $7,000. That savings, he said, made it affordable for Paloma to keep its share of its employees’ monthly insurance premiums at 85%.

“The tax credit saved us from the terrific, morale-crushing option of decreasing our health insurance coverage for our employees,” he said. Eight of the store’s 15 employees signed up for the SHOP policy sold by Moda Health. Most pay about $45 a month for their share of the premium.

Mr. Roach said he is thankful for the health law. “Wow, finally someone did something to help small businesses deal with the rising cost of providing employees health insurance,” he said. “For so many years … no one did anything but feel sorry for you.”

As Medicare approaches its 50th anniversary next week, the federal program got some welcome financial news Wednesday: Its giant hospital trust fund will be solvent until 2030, and its long-term outlook has improved, according to a report from the program’s trustees.

But the report warned that several million Medicare beneficiaries could see their Medicare Part B monthly premiums skyrocket by 52% in January – from $104.90 to $159.30. Medicare Part B, which is paid for by a combination of federal funds and beneficiary premiums, generally covers physician and outpatient costs.

Courtesy HHS

The huge rate hike is predicted because of a confluence of two factors: Medicare Part B costs increased more than expected last year, and Social Security is not expected to have a cost of living increase next year. By law, the cost of higher Medicare Part B premiums can’t be passed on to most Medicare beneficiaries when they don’t get a Social Security raise. As a result, the higher Medicare costs have to be covered by just 30% of Medicare beneficiaries. This includes the 2.8 million Medicare enrollees new to the program next year, 3.1 million Medicare beneficiaries with incomes higher than $85,000 a year, and 1.6 million Medicare beneficiaries who pay their premium directly instead of having it deducted from Social Security. An additional 9 million people affected by the higher rates are so called “dual eligibles” – those on Medicare and Medicaid. States pay the Medicare Part B premium for duals.

Medicare Part B premiums are set largely by a complicated formula written into law. The trustees’ predictions on premiums are typically close to the final rates that are announced each fall by the U.S. Department of Health & Human Services.

HHS Secretary Sylvia M. Burwell said she will examine her options and make a final decision on rates in October. “Seventy percent of enrollees in Part B will have no change in premiums,” she said at a briefing with other program trustees.

A senior government official, speaking only on background at a Treasury Department briefing on the report, said the projected premium increase in Part B is “atypical” and noted that outpatient health services were among those services that saw higher than expected costs last year. Another senior government official said Ms. Burwell has several “policy options” to lessen the premium increases but would not say what they are.

If the Social Security program determines in the next 2 months that a cost of living increase is needed for next year, that could diminish the premium hikes because they could be spread over millions more beneficiaries. But currently that is not expected.

Medicare advocacy groups expressed concern about the projected rate increase. Judith Stein, executive director of the Center for Medicare Advocacy, said she is concerned the predicted Medicare Part B premium hike signals that, for many, the program is becoming too expensive. She said the higher premiums will force more seniors to join Medicare Advantage, which offers lower costs but also restricts which providers they can use.

“I am concerned that people will start to rail against Medicare rather than love it, as they have for 50 years,” Ms. Stein said.

“We are pleased to see that 70% of people with Medicare are expected to have a stable Part B premium, and it is concerning to us that 30% could see an increase,” said Stacy Sanders, federal policy director at the Medicare Rights Center. “When the final premium amounts are released, we are committed to educating people about their Part B premium, and most importantly, about the potential availability of [programs] that can help with the cost of the Part B premium.”

The possible huge Medicare Part B premium increase overshadowed a generally positive report about the financial health of the Medicare Part A, which covers hospital costs.

The trustees report noted that the financial health of the program is being helped by factors such as an improved economy, while other factors such as more seniors in private Medicare Advantage are increasing costs. The government pays higher costs for those in Medicare Advantage, which is managed care.

While 2030 remained unchanged as the year that the program’s funds would be exhausted, the report said the program’s long-term outlook was improved. That improvement was largely due to assumptions that health costs will grow at a slower rate after 2050.

In 2014, Medicare provided health insurance coverage to 53.8 million people at a cost of $613 billion – roughly the GDP of Argentina. The average value of the Medicare benefit per enrollee was $12,432, about 2% higher than last year.

Medicare turns 50 on July 30 – eligible for its own AARP card – but it is increasingly feeling the strains of retiring baby boomers.

Medicare is adding 10,000 new beneficiaries a day as baby boomers reach age 65. The Obama administration is in the midst of overhauling the way Medicare pays doctors and hospitals to emphasize quality results over the sheer volume of procedures, tests and services. The HHS has set a goal of tying 30% of payments under traditional Medicare to new models of care by the end of 2016 and an increasing share thereafter.

The trustees report also cautioned that the Social Security Disability Insurance program, which covers 11 million people, is projected to become insolvent in the fourth quarter of 2016, unchanged from last year. President Barack Obama has proposed shifting funding from another Social Security trust fund to address the imbalance.

The projected trust fund insolvency doesn’t mean that Medicare is “running out of money.” Even in 2030, when the hospital trust fund is projected for exhaustion, incoming payroll taxes and other revenues will cover 86% of program costs.

The Medicare trustees are Ms. Burwell, Treasury Secretary and Managing Trustee Jacob Lew, Labor Secretary Thomas Perez, and Acting Social Security Commissioner Carolyn Colvin. Two other members are public representatives who are appointed by the president: Charles Blahous III and Robert Reischauer. CMS Acting Administrator Andy Slavitt is designated as secretary of the board.

Kaiser Health News is a nonprofit national health policy news service. KHN’s coverage of aging and long-term care issues is supported in part by a grant from The SCAN Foundation.

As Medicare approaches its 50th anniversary next week, the federal program got some welcome financial news Wednesday: Its giant hospital trust fund will be solvent until 2030, and its long-term outlook has improved, according to a report from the program’s trustees.

But the report warned that several million Medicare beneficiaries could see their Medicare Part B monthly premiums skyrocket by 52% in January – from $104.90 to $159.30. Medicare Part B, which is paid for by a combination of federal funds and beneficiary premiums, generally covers physician and outpatient costs.

Courtesy HHS

The huge rate hike is predicted because of a confluence of two factors: Medicare Part B costs increased more than expected last year, and Social Security is not expected to have a cost of living increase next year. By law, the cost of higher Medicare Part B premiums can’t be passed on to most Medicare beneficiaries when they don’t get a Social Security raise. As a result, the higher Medicare costs have to be covered by just 30% of Medicare beneficiaries. This includes the 2.8 million Medicare enrollees new to the program next year, 3.1 million Medicare beneficiaries with incomes higher than $85,000 a year, and 1.6 million Medicare beneficiaries who pay their premium directly instead of having it deducted from Social Security. An additional 9 million people affected by the higher rates are so called “dual eligibles” – those on Medicare and Medicaid. States pay the Medicare Part B premium for duals.

Medicare Part B premiums are set largely by a complicated formula written into law. The trustees’ predictions on premiums are typically close to the final rates that are announced each fall by the U.S. Department of Health & Human Services.

HHS Secretary Sylvia M. Burwell said she will examine her options and make a final decision on rates in October. “Seventy percent of enrollees in Part B will have no change in premiums,” she said at a briefing with other program trustees.

A senior government official, speaking only on background at a Treasury Department briefing on the report, said the projected premium increase in Part B is “atypical” and noted that outpatient health services were among those services that saw higher than expected costs last year. Another senior government official said Ms. Burwell has several “policy options” to lessen the premium increases but would not say what they are.

If the Social Security program determines in the next 2 months that a cost of living increase is needed for next year, that could diminish the premium hikes because they could be spread over millions more beneficiaries. But currently that is not expected.

Medicare advocacy groups expressed concern about the projected rate increase. Judith Stein, executive director of the Center for Medicare Advocacy, said she is concerned the predicted Medicare Part B premium hike signals that, for many, the program is becoming too expensive. She said the higher premiums will force more seniors to join Medicare Advantage, which offers lower costs but also restricts which providers they can use.

“I am concerned that people will start to rail against Medicare rather than love it, as they have for 50 years,” Ms. Stein said.

“We are pleased to see that 70% of people with Medicare are expected to have a stable Part B premium, and it is concerning to us that 30% could see an increase,” said Stacy Sanders, federal policy director at the Medicare Rights Center. “When the final premium amounts are released, we are committed to educating people about their Part B premium, and most importantly, about the potential availability of [programs] that can help with the cost of the Part B premium.”

The possible huge Medicare Part B premium increase overshadowed a generally positive report about the financial health of the Medicare Part A, which covers hospital costs.

The trustees report noted that the financial health of the program is being helped by factors such as an improved economy, while other factors such as more seniors in private Medicare Advantage are increasing costs. The government pays higher costs for those in Medicare Advantage, which is managed care.

While 2030 remained unchanged as the year that the program’s funds would be exhausted, the report said the program’s long-term outlook was improved. That improvement was largely due to assumptions that health costs will grow at a slower rate after 2050.

In 2014, Medicare provided health insurance coverage to 53.8 million people at a cost of $613 billion – roughly the GDP of Argentina. The average value of the Medicare benefit per enrollee was $12,432, about 2% higher than last year.

Medicare turns 50 on July 30 – eligible for its own AARP card – but it is increasingly feeling the strains of retiring baby boomers.

Medicare is adding 10,000 new beneficiaries a day as baby boomers reach age 65. The Obama administration is in the midst of overhauling the way Medicare pays doctors and hospitals to emphasize quality results over the sheer volume of procedures, tests and services. The HHS has set a goal of tying 30% of payments under traditional Medicare to new models of care by the end of 2016 and an increasing share thereafter.

The trustees report also cautioned that the Social Security Disability Insurance program, which covers 11 million people, is projected to become insolvent in the fourth quarter of 2016, unchanged from last year. President Barack Obama has proposed shifting funding from another Social Security trust fund to address the imbalance.

The projected trust fund insolvency doesn’t mean that Medicare is “running out of money.” Even in 2030, when the hospital trust fund is projected for exhaustion, incoming payroll taxes and other revenues will cover 86% of program costs.

The Medicare trustees are Ms. Burwell, Treasury Secretary and Managing Trustee Jacob Lew, Labor Secretary Thomas Perez, and Acting Social Security Commissioner Carolyn Colvin. Two other members are public representatives who are appointed by the president: Charles Blahous III and Robert Reischauer. CMS Acting Administrator Andy Slavitt is designated as secretary of the board.

Kaiser Health News is a nonprofit national health policy news service. KHN’s coverage of aging and long-term care issues is supported in part by a grant from The SCAN Foundation.

As Medicare approaches its 50th anniversary next week, the federal program got some welcome financial news Wednesday: Its giant hospital trust fund will be solvent until 2030, and its long-term outlook has improved, according to a report from the program’s trustees.

But the report warned that several million Medicare beneficiaries could see their Medicare Part B monthly premiums skyrocket by 52% in January – from $104.90 to $159.30. Medicare Part B, which is paid for by a combination of federal funds and beneficiary premiums, generally covers physician and outpatient costs.

Courtesy HHS

The huge rate hike is predicted because of a confluence of two factors: Medicare Part B costs increased more than expected last year, and Social Security is not expected to have a cost of living increase next year. By law, the cost of higher Medicare Part B premiums can’t be passed on to most Medicare beneficiaries when they don’t get a Social Security raise. As a result, the higher Medicare costs have to be covered by just 30% of Medicare beneficiaries. This includes the 2.8 million Medicare enrollees new to the program next year, 3.1 million Medicare beneficiaries with incomes higher than $85,000 a year, and 1.6 million Medicare beneficiaries who pay their premium directly instead of having it deducted from Social Security. An additional 9 million people affected by the higher rates are so called “dual eligibles” – those on Medicare and Medicaid. States pay the Medicare Part B premium for duals.

Medicare Part B premiums are set largely by a complicated formula written into law. The trustees’ predictions on premiums are typically close to the final rates that are announced each fall by the U.S. Department of Health & Human Services.

HHS Secretary Sylvia M. Burwell said she will examine her options and make a final decision on rates in October. “Seventy percent of enrollees in Part B will have no change in premiums,” she said at a briefing with other program trustees.

A senior government official, speaking only on background at a Treasury Department briefing on the report, said the projected premium increase in Part B is “atypical” and noted that outpatient health services were among those services that saw higher than expected costs last year. Another senior government official said Ms. Burwell has several “policy options” to lessen the premium increases but would not say what they are.

If the Social Security program determines in the next 2 months that a cost of living increase is needed for next year, that could diminish the premium hikes because they could be spread over millions more beneficiaries. But currently that is not expected.

Medicare advocacy groups expressed concern about the projected rate increase. Judith Stein, executive director of the Center for Medicare Advocacy, said she is concerned the predicted Medicare Part B premium hike signals that, for many, the program is becoming too expensive. She said the higher premiums will force more seniors to join Medicare Advantage, which offers lower costs but also restricts which providers they can use.

“I am concerned that people will start to rail against Medicare rather than love it, as they have for 50 years,” Ms. Stein said.

“We are pleased to see that 70% of people with Medicare are expected to have a stable Part B premium, and it is concerning to us that 30% could see an increase,” said Stacy Sanders, federal policy director at the Medicare Rights Center. “When the final premium amounts are released, we are committed to educating people about their Part B premium, and most importantly, about the potential availability of [programs] that can help with the cost of the Part B premium.”

The possible huge Medicare Part B premium increase overshadowed a generally positive report about the financial health of the Medicare Part A, which covers hospital costs.

The trustees report noted that the financial health of the program is being helped by factors such as an improved economy, while other factors such as more seniors in private Medicare Advantage are increasing costs. The government pays higher costs for those in Medicare Advantage, which is managed care.

While 2030 remained unchanged as the year that the program’s funds would be exhausted, the report said the program’s long-term outlook was improved. That improvement was largely due to assumptions that health costs will grow at a slower rate after 2050.

In 2014, Medicare provided health insurance coverage to 53.8 million people at a cost of $613 billion – roughly the GDP of Argentina. The average value of the Medicare benefit per enrollee was $12,432, about 2% higher than last year.

Medicare turns 50 on July 30 – eligible for its own AARP card – but it is increasingly feeling the strains of retiring baby boomers.

Medicare is adding 10,000 new beneficiaries a day as baby boomers reach age 65. The Obama administration is in the midst of overhauling the way Medicare pays doctors and hospitals to emphasize quality results over the sheer volume of procedures, tests and services. The HHS has set a goal of tying 30% of payments under traditional Medicare to new models of care by the end of 2016 and an increasing share thereafter.

The trustees report also cautioned that the Social Security Disability Insurance program, which covers 11 million people, is projected to become insolvent in the fourth quarter of 2016, unchanged from last year. President Barack Obama has proposed shifting funding from another Social Security trust fund to address the imbalance.

The projected trust fund insolvency doesn’t mean that Medicare is “running out of money.” Even in 2030, when the hospital trust fund is projected for exhaustion, incoming payroll taxes and other revenues will cover 86% of program costs.

The Medicare trustees are Ms. Burwell, Treasury Secretary and Managing Trustee Jacob Lew, Labor Secretary Thomas Perez, and Acting Social Security Commissioner Carolyn Colvin. Two other members are public representatives who are appointed by the president: Charles Blahous III and Robert Reischauer. CMS Acting Administrator Andy Slavitt is designated as secretary of the board.

Kaiser Health News is a nonprofit national health policy news service. KHN’s coverage of aging and long-term care issues is supported in part by a grant from The SCAN Foundation.

Add Tennessee and Kansas to the list of states that have been warned by the Obama administration that failing to expand Medicaid under the Affordable Care Act could jeopardize special funding to pay hospitals and doctors for treating the poor.

The Centers for Medicare & Medicaid Services confirmed on April 21 that it gave officials in those states the same message delivered to Texas and Florida about the risk to funding for so-called “uncompensated care pools” – Medicaid money that helps pay the cost of care for the uninsured.

The April 14 letter to Florida officials drew the ire of Republican Gov. Rick Scott, who said the federal government should not link the $1.3 billion in uncompensated care funding with the state’s decision not to expand Medicaid. He has threatened a lawsuit against the Obama administration if it cuts off the funding, which is set to expire June 30.

The Texas funding is scheduled to end in September of 2016. Officials there have also expressed indignation at what they perceive to be coercive pressure, and talked about joining Gov. Scott’s lawsuit.

Kansas Medicaid officials said they received about $45 million this year in federal funding for their state’s uncompensated care program, which began in 2013 and is slated to continue through 2017.

Tennessee Medicaid spokeswoman Kelly Gunderson said her state gets over $750 million in federal funding to cover uncompensated care.

The first message was delivered in the April 14 letter from Vikki Wachino, acting director of the Center for Medicaid & CHIP Services, to Florida Medicaid officials. She said that expanding Medicaid coverage is a better way to help patients and providers get access to health care than an “over-reliance on supplemental payments” to providers through a program called the Low Income Pool (LIP).

“Medicaid expansion would reduce uncompensated care in the state, and therefore have an impact on the LIP, which is why the state’s expansion status is an important consideration in our approach regarding extending the LIP beyond June,” she wrote.

CMS spokesman Aaron Albright said on April 21 that the Obama administration wants to apply similar principles to all the states that receive such funding, whether or not they expanded Medicaid.

“We’ve been in contact with those states that have uncompensated care pools and reiterated that we look forward to an ongoing dialogue to develop a solution that works for patients, hospitals and the taxpayer,” he said. “We told states that our letter to Florida articulates key principles CMS will use in considering proposals regarding uncompensated care pool programs in their states, but that discussions with each state will also take into account state-specific circumstances.”

CMS officials confirmed they also have reached out to states that expanded Medicaid about the future criteria for the funding. These states include California, Massachusetts, Arizona, Hawaii, and New Mexico.

Each state has negotiated its own program with the federal government to pay providers for treating the uninsured. But the programs differ in scope, funding, and length of time remaining.

Judy Solomon of the left-leaning Center on Budget and Policy Priorities said the special federal funding that some states negotiated for uncompensated care was never supposed to last indefinitely. The need for the funding changed as millions of people gained health coverage under the health law, she said.

“These demonstration programs are at the discretion of the Secretary of HHS and there is no entitlement to any state or providers to continue these funding arrangements when they expire,” Ms. Solomon said, adding, “The need for uncompensated care funding is changing dramatically.”

Arizona Medicaid spokeswoman Monica Higuera Coury said her state, which did expand Medicaid, was also told that the special funding would begin to be phased out this year. Arizona receives a maximum $137 million a year to offset uncompensated care costs at Phoenix Children’s Hospital. “We are looking forward to working with … CMS to put a transition plan together that moves us away from total reliance on the [funding] while still protecting this very important safety net for our children,” she said.

Some experts were surprised the Obama administration linked Medicaid expansion to the special funding because of the potential legal issues.

“No one would be shocked to hear that states don’t need the money because uncompensated care has dropped … but saying you are taking away this money because you are not expanding is trickier,” said Charlene Frizzera, a senior adviser at consulting firm Leavitt Partners. “People are shocked that CMS has done that.”

But Joan Alker, executive director of Georgetown University’s Center for Children and Families, said the administration was simply acting as a steward of taxpayer money.“I wouldn’t call it hardball, but rather responsible policy and fiscal oversight to ensure that federal tax dollars are spent in the most effective way,” she said. “When coverage is available to reduce the number of uninsured people … and states refuse those funds, why should the federal government provide them with unauthorized funding to put a Band-Aid on it?”

Kaiser Health News (KHN) is a nonprofit national health policy news service.

*This article was updated April 23, 2015

Add Tennessee and Kansas to the list of states that have been warned by the Obama administration that failing to expand Medicaid under the Affordable Care Act could jeopardize special funding to pay hospitals and doctors for treating the poor.

The Centers for Medicare & Medicaid Services confirmed on April 21 that it gave officials in those states the same message delivered to Texas and Florida about the risk to funding for so-called “uncompensated care pools” – Medicaid money that helps pay the cost of care for the uninsured.

The April 14 letter to Florida officials drew the ire of Republican Gov. Rick Scott, who said the federal government should not link the $1.3 billion in uncompensated care funding with the state’s decision not to expand Medicaid. He has threatened a lawsuit against the Obama administration if it cuts off the funding, which is set to expire June 30.

The Texas funding is scheduled to end in September of 2016. Officials there have also expressed indignation at what they perceive to be coercive pressure, and talked about joining Gov. Scott’s lawsuit.

Kansas Medicaid officials said they received about $45 million this year in federal funding for their state’s uncompensated care program, which began in 2013 and is slated to continue through 2017.

Tennessee Medicaid spokeswoman Kelly Gunderson said her state gets over $750 million in federal funding to cover uncompensated care.

The first message was delivered in the April 14 letter from Vikki Wachino, acting director of the Center for Medicaid & CHIP Services, to Florida Medicaid officials. She said that expanding Medicaid coverage is a better way to help patients and providers get access to health care than an “over-reliance on supplemental payments” to providers through a program called the Low Income Pool (LIP).

“Medicaid expansion would reduce uncompensated care in the state, and therefore have an impact on the LIP, which is why the state’s expansion status is an important consideration in our approach regarding extending the LIP beyond June,” she wrote.

CMS spokesman Aaron Albright said on April 21 that the Obama administration wants to apply similar principles to all the states that receive such funding, whether or not they expanded Medicaid.

“We’ve been in contact with those states that have uncompensated care pools and reiterated that we look forward to an ongoing dialogue to develop a solution that works for patients, hospitals and the taxpayer,” he said. “We told states that our letter to Florida articulates key principles CMS will use in considering proposals regarding uncompensated care pool programs in their states, but that discussions with each state will also take into account state-specific circumstances.”

CMS officials confirmed they also have reached out to states that expanded Medicaid about the future criteria for the funding. These states include California, Massachusetts, Arizona, Hawaii, and New Mexico.

Each state has negotiated its own program with the federal government to pay providers for treating the uninsured. But the programs differ in scope, funding, and length of time remaining.

Judy Solomon of the left-leaning Center on Budget and Policy Priorities said the special federal funding that some states negotiated for uncompensated care was never supposed to last indefinitely. The need for the funding changed as millions of people gained health coverage under the health law, she said.

“These demonstration programs are at the discretion of the Secretary of HHS and there is no entitlement to any state or providers to continue these funding arrangements when they expire,” Ms. Solomon said, adding, “The need for uncompensated care funding is changing dramatically.”

Arizona Medicaid spokeswoman Monica Higuera Coury said her state, which did expand Medicaid, was also told that the special funding would begin to be phased out this year. Arizona receives a maximum $137 million a year to offset uncompensated care costs at Phoenix Children’s Hospital. “We are looking forward to working with … CMS to put a transition plan together that moves us away from total reliance on the [funding] while still protecting this very important safety net for our children,” she said.

Some experts were surprised the Obama administration linked Medicaid expansion to the special funding because of the potential legal issues.

“No one would be shocked to hear that states don’t need the money because uncompensated care has dropped … but saying you are taking away this money because you are not expanding is trickier,” said Charlene Frizzera, a senior adviser at consulting firm Leavitt Partners. “People are shocked that CMS has done that.”

But Joan Alker, executive director of Georgetown University’s Center for Children and Families, said the administration was simply acting as a steward of taxpayer money.“I wouldn’t call it hardball, but rather responsible policy and fiscal oversight to ensure that federal tax dollars are spent in the most effective way,” she said. “When coverage is available to reduce the number of uninsured people … and states refuse those funds, why should the federal government provide them with unauthorized funding to put a Band-Aid on it?”

Kaiser Health News (KHN) is a nonprofit national health policy news service.

*This article was updated April 23, 2015

Add Tennessee and Kansas to the list of states that have been warned by the Obama administration that failing to expand Medicaid under the Affordable Care Act could jeopardize special funding to pay hospitals and doctors for treating the poor.

The Centers for Medicare & Medicaid Services confirmed on April 21 that it gave officials in those states the same message delivered to Texas and Florida about the risk to funding for so-called “uncompensated care pools” – Medicaid money that helps pay the cost of care for the uninsured.

The April 14 letter to Florida officials drew the ire of Republican Gov. Rick Scott, who said the federal government should not link the $1.3 billion in uncompensated care funding with the state’s decision not to expand Medicaid. He has threatened a lawsuit against the Obama administration if it cuts off the funding, which is set to expire June 30.

The Texas funding is scheduled to end in September of 2016. Officials there have also expressed indignation at what they perceive to be coercive pressure, and talked about joining Gov. Scott’s lawsuit.

Kansas Medicaid officials said they received about $45 million this year in federal funding for their state’s uncompensated care program, which began in 2013 and is slated to continue through 2017.

Tennessee Medicaid spokeswoman Kelly Gunderson said her state gets over $750 million in federal funding to cover uncompensated care.

The first message was delivered in the April 14 letter from Vikki Wachino, acting director of the Center for Medicaid & CHIP Services, to Florida Medicaid officials. She said that expanding Medicaid coverage is a better way to help patients and providers get access to health care than an “over-reliance on supplemental payments” to providers through a program called the Low Income Pool (LIP).

“Medicaid expansion would reduce uncompensated care in the state, and therefore have an impact on the LIP, which is why the state’s expansion status is an important consideration in our approach regarding extending the LIP beyond June,” she wrote.

CMS spokesman Aaron Albright said on April 21 that the Obama administration wants to apply similar principles to all the states that receive such funding, whether or not they expanded Medicaid.

“We’ve been in contact with those states that have uncompensated care pools and reiterated that we look forward to an ongoing dialogue to develop a solution that works for patients, hospitals and the taxpayer,” he said. “We told states that our letter to Florida articulates key principles CMS will use in considering proposals regarding uncompensated care pool programs in their states, but that discussions with each state will also take into account state-specific circumstances.”

CMS officials confirmed they also have reached out to states that expanded Medicaid about the future criteria for the funding. These states include California, Massachusetts, Arizona, Hawaii, and New Mexico.

Each state has negotiated its own program with the federal government to pay providers for treating the uninsured. But the programs differ in scope, funding, and length of time remaining.

Judy Solomon of the left-leaning Center on Budget and Policy Priorities said the special federal funding that some states negotiated for uncompensated care was never supposed to last indefinitely. The need for the funding changed as millions of people gained health coverage under the health law, she said.

“These demonstration programs are at the discretion of the Secretary of HHS and there is no entitlement to any state or providers to continue these funding arrangements when they expire,” Ms. Solomon said, adding, “The need for uncompensated care funding is changing dramatically.”

Arizona Medicaid spokeswoman Monica Higuera Coury said her state, which did expand Medicaid, was also told that the special funding would begin to be phased out this year. Arizona receives a maximum $137 million a year to offset uncompensated care costs at Phoenix Children’s Hospital. “We are looking forward to working with … CMS to put a transition plan together that moves us away from total reliance on the [funding] while still protecting this very important safety net for our children,” she said.

Some experts were surprised the Obama administration linked Medicaid expansion to the special funding because of the potential legal issues.

“No one would be shocked to hear that states don’t need the money because uncompensated care has dropped … but saying you are taking away this money because you are not expanding is trickier,” said Charlene Frizzera, a senior adviser at consulting firm Leavitt Partners. “People are shocked that CMS has done that.”

But Joan Alker, executive director of Georgetown University’s Center for Children and Families, said the administration was simply acting as a steward of taxpayer money.“I wouldn’t call it hardball, but rather responsible policy and fiscal oversight to ensure that federal tax dollars are spent in the most effective way,” she said. “When coverage is available to reduce the number of uninsured people … and states refuse those funds, why should the federal government provide them with unauthorized funding to put a Band-Aid on it?”

Kaiser Health News (KHN) is a nonprofit national health policy news service.

*This article was updated April 23, 2015