Retirement Medicare

Why Medicare Premiums May Jump 50%

• Philip Moeller @PhilMoeller

Aug. 7, 2015

Some 30% of Medicare beneficiaries, including new enrollees, may be hit with higher Part B premiums.

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This story corrects an earlier column, “3 Ways to Dodge Big Medicare Premiums Next Year,” which included inaccurate information.
Earlier this week, I wrote a piece for Money about 50% increases in Part B premiums that Medicare trustees projected would be levied next year on about 30% of Medicare users. My heart was in the right place but not my facts.
The story had some inexcusable gaffes. Thanks to Money readers who pointed them out. Apologies to all Money readers for receiving bad information, which led me to deliver some equally bad advice.
The gist of the piece is that the law requires Medicare to recover 25% of Part B expenses for covered doctor, outpatient and medical equipment expenses through Part B premiums. These expenses are rising, causing the trustees to project a fairly large hike in Part B premiums. Normally, all Medicare beneficiaries with Part B coverage would pay higher premiums.
This is not expected to be the case in 2016, however. That’s because most Part B premiums are paid out of people’s monthly payments from Social Security, and it has what’s called a “hold harmless” provision. According to this rule, Medicare beneficiaries who pay the lowest Part B premium this way—about 70% of all beneficiaries—can’t be required to pay premium increases next year that are larger than the amount of the annual cost-of-living adjustment (COLA) in their Social Security benefit that they receive.
This year there’s been little inflation. So, as the trustees said in their annual report on Medicare, there likely won’t be a Social Security COLA in 2016. Holding all those basic-premium payers harmless means they will continue to pay $104.90 a month for Part B in 2016—the same amount they are paying this year.
Still, Medicare has to recoup that 25% of Part B expenses somehow. It has no choice but to look to the other 30% of beneficiaries to pick up the entire tab for higher Part B premiums. This group includes seniors with higher incomes, those new to Medicare next year, and those who aren’t paying Part B through Social Security, mostly because they haven’t begun taking Social Security yet.