2018 Forecast for Social Security and Medicare Recipients (Hold Harmless Provision)
The Good News: We are expecting the largest Social Security Cost-of-Living Adjustment (COLA) next year since 2012 (announced in 2011.)
The Bad News: For many, higher Medicare Part B premiums will eclipse a large portion of their raise.
The official word regarding the COLA will come out in October. The forecast looks to be 2.2%.
Roughly 70 percent of the Medicare population is enrolled in both Social Security and Medicare and qualifies for the hold harmless provision. For these individuals, by law, the dollar amount of Medicare Part B premium increases cannot exceed the dollar amount of the Social Security COLA. This ensures that enrollees' net Social Security benefits do not decrease.
The other 30 percent of Medicare Part B beneficiaries who are not subject to the "hold harmless" provision are:
- Those not collecting Social Security benefits
- Those who will enroll in Part B for the first time in the coming year
- Dual eligible beneficiaries who have their premiums paid by Medicaid
- Beneficiaries who pay the income related monthly adjustment amount (IRMAA).
We have seen the hold harmless provision play out the last two years, resulting from practically non-existent COLAs (0% going into 2016 and .3% in 2017). Miserly COLAs such as these are rare and have set the stage for an equally uncommon situation for 2018. But first, a little backstory.
In 2016 the Medicare Part B premium was $104.90 per month, unchanged from 2015, for those subject to the hold harmless provision (and not subject to the IRMAA). This is because there was no COLA in 2016. Therefore, by rule, those who were already receiving Social Security and having Medicare Part B deducted from their checks could not see a decrease to their benefits. Those who were not subject to the hold harmless provision paid $121.80.
In 2017 things got even more interesting. Because there was a small (.3%) cost-of-living increase, those who were previously held harmless (paying $104.90) saw an increase in their Part B premium equal to their Social Security cost-of-living increase, for an average premium of around $109. Those not held harmless paid $134 ( a 28% increase over the premium from the previous year!). Essentially, the flat COLAs meant that non-protected Medicare enrollees shouldered most of the burden of rising Part B premiums.
Fast forward to today. The effect of a generous 2018 COLA will be spreading higher Part B costs across the entire Medicare population; closing the gap of some paying around $109 and others paying $134. Specifically, this means that previously non-protected enrollees (paying $134) will see their premiums fall, while the protected group (paying an average of $109) will pay more.
For example, let's say the standard Part B premium falls to $125. Here is how this would play out for two individuals, John and Mary.
John was held harmless this last year and has been paying $109 per month for Medicare Part B. His Social Security benefit is $1,800 per month. His Part B premium will increase by $16 ($125-$109). His cost-of-living adjustment for next year will be $39.60 (assuming it's 2.2%). This means that he will actually only see an increase of $23.60 ($39.60 COLA minus $16 additional Part B premium). This type of situation applies to the majority of Medicare recipients.
Mary was not held harmless this last year and thus, has been paying $134 per month for Medicare Part B. She will see a decrease to her Part B premium of $9 ($134-$125). She will receive her full (2.2%) cost-of-living increase. This situation only applies to those not held harmless this last year, or not held harmless this coming year.
As always, if you have any questions, our advisors are happy to help.
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