Q. Why is my Medicare Part B premium higher than my friend’s?
A. Medicare Part B premiums are usually the same for everyone except a small percentage of high-income beneficiaries. But this year monthly base premiums can range from $109 to $134.
How did this happen? Blame Medicare’s “hold harmless” rule, which you probably never heard of. It exists to protect people from seeing their Social Security benefits eroded by increases in Medicare premiums in periods of low inflation.
How ‘hold harmless’ works
To keep up with inflation, Social Security benefits are adjusted annually for increases in cost of living (COLA). The “hold harmless” rule says that Part B premiums can’t go up more than an existing beneficiary’s COLA increase. “This is designed to prevent people from receiving a lower Social Security benefit than they got the year before as a result of the higher Medicare premium,” explains Juliette Cubanski, a Medicare expert from the Kaiser Family Foundation, a nonprofit health think tank.
Most years, the “hold harmless” rule never kicks in because people’s Social Security COLA increases are more than enough to absorb Part B premium increases. But last year there was no COLA increase at all, and this year the increase was just 0.3 percent, not enough to cover the Part B premium increase.
“Say you were getting a monthly benefit of $1,000 in 2016,” explains Cubanski. “You’ll be getting only an extra $3 a month in 2017, which means your Part B premium can only go up by $3.” Meanwhile, by law Part B has to collect enough money in premiums to cover 25 percent of its total annual expenses.
Where the money comes from
About 70 percent of Part B beneficiaries fall into the “hold harmless” category, so the extra money has to come from the other 30 percent, who include:
• People who enroll in Part B in 2017.
• People who are already on Medicare but either haven’t started getting Social Security yet or sign up during 2017.
• “Dual eligible” people who get both Medicare and Medicaid because of income, disability, or both (but their Part B premiums are picked up by the government).
• People with an income of more than $85,000 for individuals or $170,000 for a couple, no matter when they started Part B or Social Security. Only about 5 percent of Part B beneficiaries fall into this group, Cubanski says.
As a result, people in the “hold harmless” group are paying an average Part B premium of $109 in 2017, while everybody else is paying a base premium of $134. And high-income beneficiaries have monthly surcharges on top of that, ranging from $53.30 to $294.50 for the very wealthiest in this group.
Nancy Metcalf is an award-winning independent journalist specializing in health topics. A senior writer and editor for Consumer Reports for more than 25 years, she is a nationally recognized expert on health insurance and health reform.