Social Security Matters: Ask Rusty – Why are our Medicare premiums different?

Published 9:24 am Saturday, April 18, 2020

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by AMAC Certified Social Security Advisor Russell Gloor, Association of Mature American Citizens     

Dear Rusty: What is the Medicare monthly payment based on? I pay $139.60, my husband pays $144.60, a friend pays $136.60. I receive $388 per month in Social Security, my husband receives $1200, and my friend receives $1000 per month. There seems to be no rhyme or reason for the amount we pay. Signed: Curious to Know

Dear Curious: It may not seem so, but there is actually “rhyme or reason” to the amount of everyone’s Medicare premium. I’ll try to explain.

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Each year Medicare determines a standard premium amount for Part B – coverage for doctors and other outpatient services. For 2020, the standard premium is $144.60; last year it was $135.50. Higher earners may even pay more, as a supplemental amount is added to the base Part B premium if someone’s income exceeds certain high clip levels set by Medicare. In short, those with high income pay a higher (than standard) Medicare premium. The rest of us pay the base $144.60 amount, unless the “hold harmless” provision is in play.

The “hold harmless” provision is a law passed by Congress to prevent Social Security benefit payments from decreasing as a result of an increase in the Medicare premium (most Medicare premiums are deducted from Social Security benefit payments). The disparity in premiums you refer to results from the hold harmless provision, which also permits all or part of a Social Security cost of living adjustment (COLA) to be applied to your Medicare premium increase, instead of going to you. Here’s what can happen:

If the Medicare premium goes up in any year, some (or all) of your annual Social Security COLA increase can be used to pay for your monthly Medicare premium increase. But, if the COLA increase to your SS benefit isn’t big enough to cover the entire Medicare premium increase, your net SS benefit stays the same and your Medicare premium amount becomes whatever level your COLA increase brings it to (up to the base premium for that year). That means that your Medicare premium could be lower than the standard Medicare Part B premium for the year.

Since the dollar value of a COLA increase varies according to the size of your Social Security benefit, those with a higher benefit may receive a COLA increase which more than covers the Medicare premium increase and the remainder is given as additional SS benefit. But those with a lower SS benefit will get a smaller COLA, which may not be enough to cover the increase in the Medicare premium. In that event, the Social Security benefit stays the same and the COLA is used to bring the Medicare premium up to, or closer to, the base premium amount. If the COLA doesn’t cover the entire Medicare premium increase, the premium stays at a lower-than-base number. And this recurs every year, which results in many people, especially those with a smaller SS benefit amount, paying a different (smaller than base) Medicare premium amount.

Here’s an example: If your husband’s SS benefit is $1200/month, he got a $19.20 COLA increase for 2020 (1.6%). The Medicare premium for 2020 went up by $9.10, which was taken from his COLA increase. The remaining $10.10 of his COLA increase was added to his SS benefit amount.

If your benefit is $388 your COLA increase was $6.20 (1.6%). That $6.20 COLA wasn’t enough to cover the $9.10 Medicare premium increase, but it was applied to your previous Medicare premium amount to bring you to a Medicare premium of $139.60. Your net SS payment stayed the same because your current SS benefit cannot be used to pay for the rest of the premium increase. But $5 of any COLA increase you get next year will go toward bringing you up to the base Medicare premium amount. While this may not fit your idea of “rhyme or reason” it is, nevertheless, based upon a well-intentioned “hold harmless” rule which protects your Social Security benefit from decreasing.