October 10, 2010 - Center for Medicare Advocacy

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

As expected, the Social Security Administration (SSA) has announced that there will not be a cost of living adjustment (COLA) in 2011 for the 54 million recipients of Social Security benefits.  The COLA is an increase to help Social Security beneficiaries keep pace with the rise in inflation.  There will be no COLA in 2011 because there has been no increase in inflation thus far during the tracking period.  Although the COLA is not a raise, many Social Security recipients think of it as such.    

While the lack of a COLA for 2011 may seem unfair to many, the SSA announcement is in keeping with the statutory calculation of the COLA. 

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 the Part B premium.  Although the Centers for Medicare & Medicaid Services (CMS) has not yet announced the Part B premium for 2011, the principles of hold harmless will apply regardless of the amount.

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 2010 and December 2010)

• 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 2010 and January 2011) (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, 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 2011.)

Because of the hold harmless provision, most Social Security recipients will not see an increase in their Part B premiums in 2011. 

Who Will Face a Premium Increase?

Most Social Security recipients will be protected by the hold harmless provision.  A significant number (last year it was about one quarter of all recipients), however, will see an increase in Part B premiums because they do not qualify for the hold harmless provision.  Those affected fall primarily into 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 2011); and

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

Beneficiaries new to Medicare in 2011, even if they received Social Security benefits in November and December, will not have had Medicare premiums deducted from their checks in both December 2010 and January 2011.  Because they were not paying Part B premiums for the last two months of 2010, they will not have experienced a decrease in benefits in 2011 that is due to the increase in the Part B premium.

Next, beneficiaries who, because their incomes exceed a threshold set in the law, are required to pay a higher, income-related Part B premium are explicitly excluded from the hold harmless provision.[3] 

Third, the roughly seventeen percent of Medicare Part B beneficiaries who are dually eligibles for Medicare and Medicaid and whose Part B premiums are paid by the state, usually through one of the Medicare Savings Programs (MSPs)[4] are not subject to the hold harmless provision. Dual eligibles are not protected by the hold harmless clause because their Part B premiums are not deducted from their Social Security checks. Dual eligibles are not directly affected, however, as the increased premium will be paid by their state Medicaid program. 

A subset of the dually eligible group consists of those who will not qualify for an MSP for all of 2011.  When they lose MSP coverage, 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 2011 will be forced to pay the 2011 Part B premium increase.  Last year, when a similar situation existed, legislation was not enacted protecting this group of people.

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.[5] They pay their Part B premiums out of pocket directly to Social Security.[6]  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.[7]  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 2011 comprises those beneficiaries who are receiving SSDI benefits, but who will not become eligible for Medicare until 2011 because of the twenty-four month waiting period.  These individuals 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 the full 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.[8]  According to a recent report by the Kaiser Family Foundation, Part D premiums have increased by about fifty-seven percent since the program went into effect in 2006.[9] 

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

If I lose my Medicare Savings Program during 2011, 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. You will have to pay the standard premium which has not yet been announced by the Center for Medicare & Medicaid Services (CMS).

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 2011 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 2010.  Does that mean my penalty is waived for 2011?

Your penalty is not waived and it will be calculated on the standard premium (not yet announced) for 2011.[10] 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."[11]   This language suggests that you would not pay more than you did in 2010. 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 standard Part B premium 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).[12]

I am paying a Part B income-related premium for 2010 based on my income of $96,000.  If my income goes down in 2011, 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) in 2011, 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.[13]

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 2010, the entire Social Security benefit went to pay my Part B premium and I paid the small difference by check.  Medicare tells me I must pay the higher standard premium for 2011.  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.[14]  You should contact the Social Security Administration to see if you qualify for relief based on these provisions.

Conclusion

Most Medicare Part B beneficiaries will not have to pay the Part B premium increase because there is no Social Security COLA in 2011.  This means that the beneficiaries who do will see a substantial increase in their premiums.  Since most of that group consists of dually eligible people, the states will bear much of that cost.  Even those who qualify for the hold harmless provision could see a decrease in their Social Security checks in 2011 because of Medicare Part D.

President Obama and Speaker of the House of Representatives Nancy Pelosi both support a one-time $250 payment to all Social Security recipients to compensate for the lack of COLA.  Speaker Pelosi has promised a vote on legislation introduced by Congressman Earl Pomeroy (D. N.D.) as the Senior Protection Act of 2010.[15]  Senator Bernie Sanders (I-VT) has introduced similar legislation in the Senate in S. 1685, The Emergency Senior Citizens Relief Act of 2009. Neither of these bills would change the "hold harmless" provision of the Social Security Act 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.