What Is the 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. The hold-harmless provision, therefore, limits the financial strain certain Social Security recipients may experience should Medicare costs rise.
- The Medicare hold harmless provision prevents a recipient's Social Security benefits from being reduced due to Medicare Part B premiums.
- People who pay Part B premiums directly to Medicare or who have premiums paid by Medicaid do not qualify for the hold-harmless provision.
- To qualify, recipients must receive Social Security benefits and have their Medicare Part B premiums paid by those benefits for a minimum of two months in the previous calendar year.
Understanding the Medicare Hold Harmless Provision
The Medicare hold harmless provision stems from a statutory restriction that prevents 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. The administration calculated the adjustment for 2020 at 1.6%.
Every year, the Centers for Medicare and Medicaid Services (CMS) must establish a standard premium for Medicare Part B insurance. The standard monthly premium for Part B set for 2020 is $144.60, while the annual deductible is $198.
By law, Medicare must collect a portion 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.
Requirements for the Hold Harmless Provision
The majority of enrollees in Medicare Part B were covered by the hold-harmless provision. 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 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.
Individuals who receive Social Security benefits and paid Part B premiums out of those benefits for at least two months in the previous year qualify for the provision.
The remaining Medicare Part B enrollees are high-net-worth households that report adjusted gross incomes (AGIs) above $87,000 in 2020. These households must pay income-related monthly adjustment amounts (IRMAA) that raise their monthly premiums above the established standard. For example, single beneficiaries with an AGI of $87,000 or more and less than $109,000 will pay a monthly adjustment amount of $57.80 in 2020. The monthly adjustment amount for single filers who make $500,000 or more is $347.
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 when the COLA fell to zero as it did in 2015, 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, 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.