Medicare Advantage

Medicare hold harmless clause and COLA

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While the Obama Administration has yet released its 2016 Medicare Part B costs. But due to a Social Security provision, known as the hold harmless rule, about 30 percent of Part B enrollees may face premium increases.

Typically, those who have claimed Social Security benefits and receive Medicare must, by law, have their Part B premiums withheld from their Social Security payments. And due to the hold harmless rule, Social Security benefits can’t decline year-to-year.

Generally, each October, the Social Security Administration (SSA) announces a cost of living adjustment (COLA) for the following year. Therefore, when Medicare announces any Part B premium increases, these higher payments are simply taken out of beneficiaries’ COLA-adjusted Social Security benefits. As of now, this proposal has not yet been passed.

Lower COLA, higher premiums

In 2016, the COLA is expected to be zero (see chart below). This won’t impact the majority of Medicare beneficiaries who fall under the hold harmless rule. By law, they won’t face any premium increases next year. Instead, they’ll continue to pay the current premium of $104.90.

However, Medicare still has financial responsibilities and can’t just absorb any increases. In fact, the law states that beneficiaries are responsible for roughly 25 percent of Medicare Part B’s expenses. These costs must be paid by those not shielded by the hold harmless rule. Current projections suggest that these beneficiaries face a 52 percent increase in 2016 Part B premiums. Among these are:

  • New enrollees to Medicare in 2016
  • Those with modified adjusted gross incomes (MAGI) above $85,000 ($170,000 on joint tax returns).
  • Those who haven’t received Social Security benefits yet, but pay their Medicare premiums directly to Social Security
  • Low-income beneficiaries, with premiums paid by their state. As they’re not held harmless, state budgets would be impacted in 2016

For the 30 percent of beneficiaries not held harmless, the monthly premium increases from $104.90 to $159.30. For higher-income premium groups, 2015’s monthly premium range of $146.90-$335.70 increases to a monthly range of $223-$509.80 in 2016. Trustees expect that the Part B Medicare annual deductible would also increase by 52 percent in 2016, from $147 to $223. These increases would apply to Original Medicare (Parts A and B), as well. The exceptions would be those with Medigap Plans C and F; those plans pay these deductibles.

Explore your payment options

Any COLA-related increases have not formally passed yet. But once they do, those affected must pay the higher premiums. As such, those paying their premiums directly to Social Security should sign up for Social Security before the end of the year. They should also begin having their Part B premiums automatically deducted from their Social Security payments. By doing so, these beneficiaries should be held harmless in 2016.

However, as taking Social Security benefits early has its pros and con, consider this option carefully. All enrollees have a seven-month window, extending before and after their 65th birthday. So, it may be helpful to hold off on enrolling in Part B until 2017.

For now, Medicare officials are researching how to reduce these increases, while still ensuring funding for Part B expenses. You should know that any COLA-related increases aren’t permanent. Part B premiums should change in future years. Therefore, beneficiaries held harmless in 2016 would pay more in subsequent years. Those not held harmless in 2016 would have their premiums decrease. And eventually, all members without an income-based premium surcharge would pay the same Part B premium.