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The Part B premium is more complicated this year.  There have always been variations in the premium amount paid by different beneficiaries, due, mostly, to the application of late enrollment penalties.  In 2010, however, the lack of a Social Security Cost of Living Adjustment (COLA) for 2010 creates new wrinkles in Part B premium calculations for those whose premiums are based on Medicare's standard premium amount ($110.50 in 2010).  The spill-over effects on Part B premiums from the absence of a COLA will have a particularly strong impact on state Medicaid programs paying the premium for their dually-eligible beneficiaries and on lower-income beneficiaries who do not receive state assistance but who are subject to the higher premium.

The standard Part B premium is determined by projecting the costs of Part B for the coming year and requiring beneficiaries to pay, up front, twenty-five percent of those costs, in the form of a monthly premium.[1]    Since 2007, Part B premiums have been income-related; that is, individuals with incomes above a certain amount pay premiums higher than the standard premium. (See the chart below for the income-related premium amounts and income ranges for 2010). Moreover, for 2010 and probably 2011, even beneficiaries with incomes below the income-relating threshold will pay varying amounts.  This is because of a Medicare provision, commonly referred to as the "hold harmless" provision, that protects beneficiaries from experiencing a reduction in their Social Security check due to a Part B premium increase that is greater than the Social Security Cost of Living Adjustment (COLA).  For 2010, application of the formula used to calculate the COLA resulted in no COLA.

Since writing several Alerts last year about these changes to the premium, especially the no-COLA related change, the Center for Medicare Advocacy has received many inquiries about how the law works in particular circumstances.  This CMA Alert will address those inquiries, starting with a summary of the provisions of the law, then changing to a Question and Answer format to address specifics.

Part B Income-Related Premiums

Included in the Medicare Modernization Act of 2003[2] was a provision to require Medicare beneficiaries with incomes above a certain threshold to pay a higher-than-standard premium.  The amount of the higher premium varies according to income ranges. The higher premium is based on an individual's modified adjusted gross income from two years before the year for which the premium is being determined.[3]  Individuals can appeal the determination of their premium amount.[4]  The Part B income-related premiums for 2010 are shown in the box below.

Medicare's Hold Harmless Provision

Medicare law provides that, for those beneficiaries who have their Part B premium deducted from their Social Security check, the annual premium increase will not exceed the Social Security COLA.[5] That is, the Part B premium withheld should not cause a reduction in the amount of the Social Security check from one year to the next.  To qualify for this protection, the beneficiary must have received Social Security payments for the months of November and December in the previous year, have had the Part B premium deducted from those checks (which are issued in December and January), have not received a COLA that is greater than the Part B increase, and have not had income at or above the threshold for the income-related premium (currently $85,000 for an individual and $170,000 for a couple).

About 75% of Medicare beneficiaries qualify for the hold harmless protection described above. The reduced premium they pay is referred to as a "non-standard premium." Because the standard premium, by law, is required to cover 25% of Part B costs, those who are not protected by the hold harmless provision pay a higher premium than they would pay if the cost were spread over all beneficiaries.

The 25% of beneficiaries not held harmless comprise several discrete sub-groups:

• Individuals who, for whatever reason, pay their Part B premium by a means other than through deduction from their Social Security check. This group includes people with disabilities who are no longer receiving a Social Security check but who continue to be eligible for Medicare; 

• New Medicare beneficiaries, including people with disabilities whose 24 month waiting period expires during the current year; 

• Individuals who are dually eligible for Medicare and Medicaid, including Medicare Savings Programs and who thus have their Part B premiums paid by their state Medicaid agency.

• Beneficiaries who pay the Part B income-related premium. 

The following chart summarizes the operation of the hold-harmless provision.

Frequently Asked Questions about the Hold Harmless Provision and about the Income-Related Premium

If I lose my Medicare Savings Program during 2010, what amount of premium will I pay?

Because your state paid your Part B premium and thus it was not deducted from your Social Security checks for months that would qualify you for the hold harmless provision, you are not among those who are held harmless and you will have to pay the standard premium of $110.50.

I have both my Part D premium and my Part B premium deducted from my Social Security check.  My Part D premium went up for 2010 and that full amount is being deducted from my check.  Isn't there a hold harmless provision for Part D?

Unfortunately, there is not such a provision.  The operation of the Part B hold harmless provision only protects beneficiaries from a reduction that would be caused by the Part B premium amount.

I have to pay a late enrollment penalty, but my Part B premium was deducted from my Social Security checks  for November and December of 2009.  Does that mean my penalty is waived for 2010?

Your penalty is not waived and it will be calculated on the standard premium of $110.50 for 2010.[6] The hold harmless provision protects an individual from an increase in his/her Part B premium "to the extent that such increase would reduce the amount of benefits payable to that individual for that December below the amount of benefits payable to that individual for that November."[7]   This language suggests that you would not pay more than you did in 2009. However, according to implementing regulations, a late enrollment penalty is added to the so-called non-standard premium and, since the late enrollment penalty is calculated on the standard premium, it is likely to result in a higher premium than you paid last year.

I have to pay more than the $110.50 because I enrolled late into Part B and did not have my premium taken from my check. Now my Part D premium went up for this year, too. But my income is only about $1,000 a month and I have almost nothing in the bank.  I'm thinking of dropping Part B because I can't afford the premiums anymore.  I  might have to drop Part D, too, because I can't  really afford it, but I have lots  of prescriptions and don't know what I would do if I had to pay all of it myself.

You should not drop Part B or Part D.  You are probably eligible for a Medicare Savings Program from your state, as well as for the Part D Low-Income Subsidy (LIS).  The Medicare Savings Program would pay your entire Part B premium and you would be relieved of your late enrollment penalty.  The Part D Low Income Subsidy would entitle you to a premium-free Part D plan and to very low payments for each prescription.  Contact your state Medicaid program to apply for Medicare Savings Programs and Social Security (www.ssa.gov) to apply for the Low Income Subsidy or find a State Health Insurance Program (www.shiptalk.org) near you to help you through the applications.

I'm confused.  Some things I read refer to November and December as being the months that are relevant for qualifying for the hold harmless provision and some refer to December and January.  Which is right?

Both references are correct.  The confusion lies in a disparity between Social Security and Medicare law with respect to when benefits are paid and premiums are deducted.  Your Social Security check for November is actually paid to you in December and the Part B premium amount that is withheld from it is the payment for December.  Similarly, your December Social Security benefit is paid in January and the Part B premium amount for January is taken from that check.  The hold harmless provision says that the Part B premium amount should not result in the benefits due for December (received in January) being lower than the benefits due for November (received in December).[8]

I am a retired Civil Service employee enrolled in Medicare Part B and I pay my premium quarterly by check.  My premium increased by more than $14/month this year.  Why?

You are among those who are not protected by the "hold harmless" provision, so your premium increased from $96.40 in 2009 to $110.50 in 2010.

I am paying a Part B income-related premium for 2010 based on my income of $96,000.  If my income goes down in a future year, will my premium continue to be calculated on the standard $110.50 premium for 2010?

The short answer is no, but a more complete answer is a little complicated.  First, each year's standard premium amount is based on projected Medicare Part B costs for that year rather than on the previous year's standard premium. And the Part B income-related premium is based on the standard premium. So the premium amount for 2010 will not be a factor in determining either the standard or the income-related premium amount for 2011.  Second, the amount of an individual's Part B income-related premium is first determined by the Social Security Administration (SSA) based on income tax returns from two years prior to the year for which the premium is being determined.  Your Part B income-related premium for 2010 was calculated on your 2008 income. If your modified adjusted gross income goes below the threshold for the Part B income-based premium for an individual ($85,000 for 2010) in a future year, your premium will still be calculated by SSA on a prior year's tax return, so may continue to reflect higher income.  Should that occur, you can appeal the SSA determination of your premium amount by showing evidence of your actual income.[9] 

I enrolled in Medicare Part B without taking Social Security benefits in 2009.  I paid three months worth of Part B premium by check in October.  I then signed up for Social Security benefits beginning November 2009.  No one at the Social Security Administration told me I could avoid the higher premium by having it taken from my check beginning in November.

Individuals such as you who became eligible for Medicare late in 2009 were faced with a lot of confusion as to how to proceed and the information available was not always as clear as it needed to be.  A provision of the Social Security Act authorizes equitable relief in whatever form the Secretary determines is necessary for individuals who are harmed by incorrect information from an employee of the federal government.[10]  You might contact Social Security and ask for "reconsideration" of your situation based on that provision.

I am a retired high school teacher who did not contribute to the Social Security system.  Nonetheless, I am entitled to a small Social Security benefit but my government pension offset reduces my check to about $90.  For 2009, the entire Social Security benefit went to pay my Part B premium and I paid the difference ($6.40) by check.  Medicare tells me I must pay the higher standard premium of $110.50 for 2010.  Is that right?

Regulations governing the application of the hold harmless provision do include reference to benefit offsets due to government pensions, but it is unclear if these regulations would protect you in the situation you describe.[11]  You should contact the Social Security Administration to see if you qualify for relief based on these provisions.

Conclusion

The hold-harmless provision protects most beneficiaries, but those who are outside its protection pay a significantly higher premium than would otherwise be applicable. States paying for their dually eligible Medicare beneficiaries (17% of all Medicare beneficiaries fall into this group) are hit hard by the higher premium, as are those lower-income beneficiaries who have too much income to qualify for state assistance.  Congress has considered legislation to eliminate the premium increase for 2010[12] but nothing has been enacted into law.  Since 2011 is also likely to be COLA-free, on-going concern about the Part B premium may lead to Congressional action.  If this is a matter of concern to you, contact your Congressional delegation (www.house.gov and www.senate.gov provide information on how to contact your representatives.  And stay tuned!