What is the Medicare “Hold Harmless” Provision, and Why Should I Care?

June 2, 2017

insurance

Introduction

Medicare was passed by Congress in 1965 and quickly became the primary source of health insurance for most Americans age 65 and older.  “Original Medicare”, as it is still known today, provided hospital coverage under Part A.  Doctor visits, outpatient surgery, and related services were covered under Part B.  Most Medicare enrollees pay no premium for Part A coverage, whereas Part B requires a monthly premium.  The amount one pays for Part B coverage is determined by a variety factors, including the Income Related Monthly Adjustment Amount (IRMAA) discussed my last blog.  This article discusses another of those factors known as the Hold Harmless provision.

 

Part B Premium rate history

Each fall, the Center for Medicare & Medicaid Services (CMS) announces the Part B premium for the following calendar year.  The goal is to charge enrollees 25% of the average per capita Part B expense with Medicare picking up the remaining 75%.  Anyone subject to IRMAA will pay a Part B surcharge depending upon their income.

Much as health care costs have risen over the past 50 years, so have Part B premiums.  In 1966, the Part B premium was $3 per month.  By 1980, it had risen to $23 per month and to $45.50 per month by 2000.  In 2017, the Part B premium for new enrollees is $134 per month.

 

What does Hold Harmless mean?

The Hold Harmless provision currently covers approximately 70% of Medicare enrollees.  It was introduced to prevent a reduction in Social Security payments caused by an increase in Part B premiums that are deducted from Social Security payments.   Medicare and Social Security are related but separate government programs.  Each year, Social Security determines how much, if any, benefit payments will increase based upon a cost-of-living (COLA) calculation.   In 2016, the Social Security COLA increase was 0%, so Part B premiums remained flat for the 70% of Medicare enrollees covered by the Hold Harmless provision.  In 2017, the COLA increase was 0.3% which resulted in the Hold Harmless provision limiting the Part B premium to a very modest increase.  Most Medicare enrollees covered by Hold Harmless are currently paying a Part B premium of $109, while those not covered are paying $134 per month.

 

Who are the 30% not covered by Hold Harmless?

For the most part, those not covered are individuals enrolled in Medicare, but not yet receiving Social Security payments (or not having Part B premiums deducted from Social Security payments).  These individuals include those who are: 1) new to Medicare, 2) still working and have elected to defer Social Security, or 3) have chosen to defer Social Security benefits, perhaps as part of a “file and suspend” strategy.  Also, higher income earners subject to the IRMAA adjustment are not protected by Hold Harmless.

 

A bit of good news

The Part B premium difference between those covered and not covered by Hold Harmless is not permanent and can disappear.  This has occurred in the past when Social Security benefit increases exceeded Medicare Part B premium increases.  For example, as a result of no Social Security COLA increases in 2009 and 2010, the non-Hold Harmless Part premium increased to $115.40 versus $96.40 for Hold Harmless.  After a 3.6% COLA increase in 2012, the Part B premium normalized to $99.90 for most enrollees.  Whether this pattern occurs again remains to be seen.

 

Learning More

This blog post deals with a Medicare topic many insurance agents are not familiar with.  Understanding the details of Medicare is not something everyone focuses on.  At Vrabec Insurance Medicare is the only type of insurance we deal with.  If you’d like to meet and discuss your specific situation, please contact Mike Curtiss at mike@vrabecinsurance.com, or call him directly: (317) 939-2144.


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