What is Medicare Hold Harmless Provision

The Medicare hold harmless provision prohibits Medicare Part B premiums from reducing the amount of an individual’s Social Security benefits year over year. This limits the rise in Medicare Part B premiums paid by Social Security beneficiaries in a given year to no more than the cost of living increase provided by Social Security.

BREAKING DOWN Medicare Hold Harmless Provision

The Medicare hold harmless provision stems from a statutory restriction preventing Medicare from raising most Social Security recipients’ Medicare Part B premiums by more than the cost of living adjustment (COLA) provided by Social Security in a given year. Every year, the Centers for Medicare and Medicaid Services must establish a standard premium for Medicare Part B insurance. By law, Medicare must collect a certain proportion of its Part B expenses from beneficiaries. Low COLA increases can put the calculation of the standard premium in tension with the hold harmless provision because it affects the majority of Part B enrollees. This can place an increased burden on those who are exempt from the hold harmless provision.

Effects of the Provision

The hold harmless provision covered roughly 70% of enrollees in Medicare Part B in 2017. The other 30% generally fall into one of two categories. High-net-worth households reporting adjusted gross income above $85,000 in 2016 must pay income-related monthly adjustment amounts (IRMAA) that raise their monthly premiums above the established standard of $134 in 2018 (for 2019 the figure is $135.50 and it will be based on one's 2017 income).

To qualify for reduced payments under the hold harmless provision, individuals must receive Social Security benefits and must have had their Part B premiums paid out of those Social Security benefits for at least two months in the previous year. Those who make payments for Part B insurance directly to Medicare and those who have premiums paid by Medicaid do not qualify and therefore may be subject to higher premiums.

Unintended Consequences

Another unintended consequence of the hold harmless provision occurs when the COLA moves from near zero to higher numbers. Social Security adjusts the COLA in response to changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). In theory, this means rises in Social Security benefits should cover increased prices for goods and services.

In years such as 2016, when the COLA fell to zero, the Medicare hold harmless provision forced Medicare to charge proportionally higher premiums to those ineligible for the provision’s protection. When the COLA rises again, however, nothing keeps Medicare Part B premiums from rising in tandem. In 2018, for example, Medicare estimated that 42% of enrollees subject to the provision would pay the full premium as increases to their benefits from the rising COLA covered the cost, wiping out some or all of the increased income they would otherwise have received.