The Medicare Hold Harmless Provision protects people on Social Security Income (SSI) from a reduced income if their annual Part B premium increase exceeds the Social Security cost-of-living adjustment.
Social Security is a safety net for retirees who can’t save enough money to support themselves in their golden years. If you are a Social Security recipient and on Medicare, your Part B premiums are automatically deducted from Social Security income.
The Hold harmless rule ensures that Medicare premium increases do not exceed the increases in Social Security income, reducing your net income.
Key Takeaways
The Hold Harmless Provision is designed to protect Medicare beneficiaries who are also active social security recipients. It protects them from seeing a reduced social security income due to rising Medicare premium increases.
Dual eligible and Medicaid recipients are exempt when their monthly premium for Medicare is paid by the State. They do not nee the Hold Harmless protection.
Higher income individuals who pay an IRMAA surcharge are exempt from the protections of the Hold Harmless provision.
Medicare beneficiaries who are not Social Security recipients are not protected from the Part B premium increase by the hold harmless agreement. They will pay the full higher premiums due to either IRMAA or any increase in the standard premium.
What is the Medicare Hold Harmless Provision?
The Medicare Hold Harmless Provision is a special rule, managed by the Social Security Administration, that keeps most Social Security claimants from having their income reduced because Medicare Part B premiums are increasing at a faster rate than their income. This protection is used in years when the cost-of-living adjustment (COLA) for SSI isn’t enough to cover the rise in Medicare Part B rates.
Who is Covered By The Medicare Hold Harmless Provision?
The Hold Harmless provision only applies to current social security recipients. It does not apply to those who have started their Medicare Part B but not yet started receiving Social Security payments (SSI). To be eligible, you must be eligible for SSI benefits in November and December of the current year and had your Medicare Part B premiums taken out of your Social Security benefits in December of the previous year and January of the current year.
If you have started your Medicare Part B but not your SSI you will pay the full increase in Part B Medicare costs even if they increase more than any increase in inflation as measured by the Consumer Price Index (CPI).
You are not eligible for the hold harmless provision in your first calendar year of Medicare benefits.
Around 70% of Medicare members are protected by the Hold Harmless clause when their Social Security benefits COLA increase is insufficient to keep up with an increasing Medicare premiums.
While they may pay a lower than standard Medicare Part B premium for years, eventually their Medicare Part B premiums will catch up to the standard Medicare beneficiaries Part B premium. In years where the COLA increase in Social Security payments is greater than the dollar increase in Medicare premiums, those who had reduced increases due to the Hold Harmless clause can see their Medicare premium increase and eventually catch up with the standard Part B premium.
IRMAA Exemption
The Hold Harmless provision only protects those receiving Social Security benefits and making Medicare payments in the prior year. However, no one whose Part B premiums are impacted by an income related monthly adjustment amount (IRMAA) can use the Hold Harmless provision to lower Part B premiums. IRMAA impacts high income Medicare beneficiaries whose individual modified adjusted gross income is $97,000 or more in 2023. For joint filers that income limit would be $194,000.
Medicaid and Dual Eligible Exemption
In addition to these restrictions, it’s crucial to remember that the Hold Harmless clause does not apply to anyone who qualifies for both Medicaid and Medicare whose monthly Medicare premiums are paid by their state. This group has approximately 10 million members, representing 19% of Medicare beneficiaries and two-thirds of those not covered by this special rule.
The provision does not apply to those on full Medicaid because their Part B premiums are are usually paid by their state.
What Impact Does the Hold Harmless Provision on Medicare Premiums Have?
The protections provided by the Hold Harmless provision are not without their costs on the system as a whole. Because 70% of Medicare recipients may pay a lower than standard premium, the other 30% may face a higher total monthly premium to make up for the funds not paid due to the hold harmless protection.
People on Medicare but not receiving social security benefits will pay a higher Medicare Part B premium to cover increased healthcare costs by everyone.
Historically, the standard Medicare Part B premiums paid only 25% of what it costs to run Medicare outpatient services. Via the income taxes you pay, the federal government covers the remaining 75%. An imbalance between the cost of living adjustment to Social Security and increases in the Medicare Part B premium can lead to a minority of retirees paying a large portion of Medicare premiums.
Hold Harmless Provision Example
Sometimes the best way to fully understand a subject is by reviewing examples. So let’s take a look at what would happen in two separate examples of what happens when Medicare premiums increase at a greater rate your Social security benefit.
Using a fictitious round number, let’s say that a person is paying a standard Medicare Part B monthly premium of $170. This same person is receiving a Social Security benefit of $1,500 per month.
The Social Security Administration announces that Social Security’s COLA is 5% for the year. That would add $75 to their monthly income.
At the same time, it is announced that the premium for Medicare is increasing to $250 per month. The additional Medicare premium is $80 per month. Obviously $80 is greater than $75. If there was hold harmless provision this consumer would have a net decrease in income of $5 per month for the coming year.
Most people would be outraged that their premiums increased, inflation increased and their income decreased.
To offer some protection, this consumer will be held harmless for that extra $5 per month. While their Social Security Check increased, that increase will never be experienced because of higher Medicare costs. But at least their gross income did not decrease.
Example #2
The above example is made to be easy to follow. However, historically most of the occasions where individual were held harmless from high Medicare rate increases were in periods of very low inflation.
For example, there were several occasions between 2010 and 2020 where Social Security COLA was 2.8% or lower, as low as 0.3% in 2017. In those cases the issue was not that there were unusually large price increases in Medicare, but that Social Security COLA increase were negligible.
A 0.3% increase in Social Security benefits meant Social Security checks increased by only $4 a month for average recipient. That same year the Part B premium increased by $12.20 to $134 per month. The cost of living increase was only one third the increase in the cost of Medicare benefits.
That year 70% of Medicare recipients benefited from the Hold Harmless rule and paid only $109 per month in Medicare premiums. Those who were not eligible for the Hold Harmless protections ended up paying at least $12.80 per month for the same part B benefits.
Conclusion
The Hold Harmless rule works. It protects those in the low to middle income brackets from experiencing a reduced net social security benefit in times when Medicare increases in cost are higher than increases in Social Security checks.
Although it is not a perfect system and certainly does not protect against the hardships of inflation, it offers some measurable benefits, It’s a consumer friendly rule that is worth having.
Sources:
https://blog.ssa.gov/how-the-hold-harmless-provision-protects-your-benefits/
https://sgp.fas.org/crs/misc/R40082.pdf (pages 28-29)
Matthew Claassen
Matthew Claassen, CMT and CEO of Medigap Seminars Insurance Agency. Medigap Seminars is an award winning premier national Medicare Insurance Brokerage, ranked among the top in the U.S.A. Matthew is considered a leading national expert on Medicare and Social Security. Mr. Claassen is a distinguished member of the Forbes Business council, an invitation only organization of business leaders and entrepreneurs. He and his team have received awards from many of the countries largest insurance companies including Mutual of Omaha, Aetna, Humana, Cigna, United American, United Healthcare and others. His videos have become the most popular Medicare educational videos on YouTube with millions of views. As a financial analyst Matthew lead a team of researchers to win the 2009 Best Equity Research & Strategy Award from The Technical analysis magazine.
