Washington, DC - Social Security Matters: Ask Rusty - COLA, Medicare Premiums and the Hold Harmless Provision
Dear Rusty: My wife and I got the annual notification of our Social Security earnings starting Jan 1, 2018. UNBELIEVABLE! I will get a gross COLA increase of $31.00 a month, but I will only get $6.00. The remaining $25.00 will go into the increase in Medicare. The last 4 years I got nothing in each of the years. It all went into Medicare. My wife in the last 4 years got no increase at all. It all went into Medicare. And guess what? Starting in January, all her COLA increase of $14.00 will go into Medicare. That makes 5 years in a row that she will get no raise at all! How can that be? ~ Frustrated
Dear Frustrated: I understand your anger and, if it's any consolation, you are only one of millions of Social Security recipients who are caught in this dilemma. Social Security's "hold harmless" provision states that your monthly Social Security benefit cannot go down because of an increase in Medicare's Part B premium. That sounds good, right? And it generally is because few who collect Social Security can afford to have their benefit amount lowered.
When the standard Medicare premium goes up as a result of Medicare's rising costs, the Medicare premium for someone "held harmless" is kept artificially lower than the standard Part B premium. But there's a catch in the provision which says that while your monthly benefit can't go down, any time your Social Security benefit increases for any reason, all or part of that increase can be used to bring your Medicare premium up to, or at least closer to, the base Part B premium for the year. And that is what happened to both you and your wife; since the Medicare premium you were paying was lower than the standard 2018 premium, the 2% COLA (cost of living) increase for 2018 was applied to your Medicare premium to bring it in line with the standard premium amount of $134. But your monthly Social Security benefit did not go down. Unfortunately that means you won't see most or even all of the COLA increase because it's applied to the Medicare premium you're paying to bring that in line with the standard premium amount.
About 70% of Medicare beneficiaries are protected by the "hold harmless" provision because their Medicare premium is paid from their Social Security benefit. Others, who pay their Medicare premium separately such as those not yet collecting Social Security after age 65, aren't protected and bear the full brunt of any increase to Medicare premiums. Those new to Social Security in 2018 will pay the full $134 premium (or possibly more if they exceed certain income thresholds). For the record, the 2018 standard Medicare premium is the same as the 2017 premium. And while the standard premium didn't increase, your Medicare premium in 2017 was $109 and your wife's was $120 because you were previously "held harmless". But because of the 2% COLA increase this year, $25 of your $31 increase and all $14 of your wife's increase went to Medicare, bringing you both up to the standard Part B premium amount of $134.
I want to note that it's not only COLA increases that can be applied to Medicare premiums. Social Security recipients whose status changes (e.g., switching from their own benefit to spousal or survivors benefits), may also be affected.