August 27, 2009

SOCIAL SECURITY: NO COST OF LIVING ADJUSTMENT
MEDICARE: HIGHER PREMIUMS FOR SOME

Introduction

The Social Security Administration (SSA) has announced that there is not likely to be a cost of living adjustment (COLA) for recipients of Social Security benefits in 2010.  The COLA is an increase to help Social Security beneficiaries keep pace with the rise in inflation.  Although the COLA is not a raise, many Social Security recipients think of it as such.    

There will likely be no COLA in 2010 because there has been no increase in inflation thus far during the tracking period.  While the lack of a COLA for 2010 may seem unfair to many, the SSA announcement is in keeping with the statutory calculation of the COLA.  And with the current state of the economy, the Congressional Budget Office (CBO) predicts that there will be no COLA until 2012 and then only a modest one.    

The "Hold Harmless" Provision 

A hold harmless provision in the Social Security Act disallows an increase in the Medicare Part B premium for qualifying Social Security recipients if their COLA is not large enough to cover the increase in their Part B premium.

To be protected by the hold harmless provision, a beneficiary must[1]:

• Be entitled to Social Security benefits for November and December of the preceding year.  (For the next cycle, November 2009 and December 2009)

• Have the Medicare Part B premium deducted from Social Security benefits in December of the preceding year and January of the current year.  (For the next cycle, December 2009 and January 2010) (The discrepancy between months of entitlement and months of check is due to the program design that has the beneficiary receiving the check for last month's benefits in the current month, e.g. December's benefits come in January.)

• Not receive a COLA that is greater than the Part B premium increase.  (For the next cycle, it is projected that no one will receive a COLA.)

• Not have a modified adjusted gross income over a certain amount.  ($85,000 for an individual and $170,000 for a couple in 2009)

Because of the hold harmless provision, most Social Security recipients will not see an increase in their Part B premiums in 2010. 

Who Will Face a Premium Increase?

About one quarter of Social Security recipients will see an increase in Part B premiums because they do not qualify for the hold harmless provision.  This one quarter comprises primarily three groups.[2]  These three groups are:
 

• New Medicare beneficiaries;

• Higher-income beneficiaries (modified adjusted gross income greater than $85,000 for individuals and $170,000 for couples in 2009); and

• Beneficiaries whose Part B premiums are paid by the state through one of the Medicare Savings Programs (MSPs). 

Beneficiaries new to Medicare in 2010, even if they received Social Security benefits in November and December, will not have had Medicare premiums deducted from their checks in both December 2009 and January 2010.  Because they were not paying Part B premiums for the last two months of 2009, they will not have experienced a decrease in benefits in 2010 that is due to the increase in the Part B premium.

Next, there is a group of beneficiaries who, because of their incomes, are required to pay a higher, income-related Part B premium.  The hold harmless provision specifically excludes from its protection people who pay the income-related premium in January of the applicable year.[3] 

Seventeen percent of Medicare Part B beneficiaries are "dual eligibles" who qualify for both Medicare and Medicaid and whose Part B premiums are paid by the state, usually through one of the Medicare Savings Programs (MSPs). The three MSPs are the Qualified Medicare Beneficiary (QMB), Specified Low-Income Medicare Beneficiary (SLMB), and Qualified Individual (QI) programs.  Duals are not protected by the hold harmless clause because their Part B premiums are not deducted from their Social Security checks. Duals will not be directly affected, however, as the increased premium will be paid by their state Medicaid program. 

A subset of the dual eligibles group consists of those who will not qualify for an MSP for all of 2010.  This means they will have to pay the higher Part B premium since their premiums were not being taken from their checks at a time when they could have qualified for the hold harmless provision.   Not only will they suddenly have to pay the Part B premium themselves, but they will have to pay an increased premium.  Unless something is done legislatively to change the situation, those who lose their MSPs in 2010 will be forced to pay the 2010 Part B premium increase.

Lastly, there is a small group of former Social Security Disability Insurance (SSDI) recipients who still qualify for Medicare even though they no longer receive SSDI.[4] They pay their Part B premiums out of pocket directly to Social Security.[5]  The hold harmless provision states that one must receive monthly social security benefits and have the Part B premium deducted from those benefits in order to qualify for protection.[6]  It would seem that since former SSDI recipients do not currently have a benefit to deduct a Part B premium from, they will not qualify for hold harmless protection.  Another group of SSDI recipients facing the possibility of having to pay the higher premium in 2010 are those beneficiaries who are receiving SSDI benefits, but who will not become eligible for Medicare until 2010 because of the twenty-four month waiting period, will also have to pay the premium increase. 

The chart below illustrates how different types of Part B beneficiaries are affected:

Further Effects on Social Security Recipients

Part D Increase

Even those protected by the hold harmless provision may still see a decrease in their Social Security checks due to an increase in Medicare Part D premiums.  Medicare beneficiaries with low-income subsidies (LIS) do not pay Part D premiums and will not be affected.  However, more than two million low-income beneficiaries are eligible for LIS benefits, but are not receiving them.[7]  Part D premiums have increased by thirty-five percent over the few years since the program went into affect.  The biggest increase occurred between 2008 and 2009.[8]  

Conclusion

Seventy-five percent of Medicare Part B beneficiaries will not have to pay the Part B premium increase if there is no Social Security COLA in 2010.  This means that the other twenty-five percent will see a substantial increase in their premiums.  Since most of that twenty-five percent consists of dual eligibles, the states will bear a lot of that cost.  Even those who qualify for the hold harmless provision could see a decrease in their Social Security checks in 2010 because of Medicare Part D.

Currently, neither the Senate HELP committee bill nor the House Tri-Committee bill on health reform mention fixes to this problem.  The Social Security Act must be amended to cover the groups not currently protected by the hold harmless provision. 

For more information, contact Patricia Nemore in the center for Medicare Advocacy's Washington, DC office at (202) 293-5760 or pnemore@medicareadvocacy.org.

Copyright © 2010 Center for Medicare Advocacy, Inc.