The Hold Harmless Act
Medicare’s Hold Harmless Act, created in 1984 through the Medicare Catastrophic Coverage Act, is a provision that:
“Shelters certain beneficiaries from a reduction in their benefit check which is a consequence of the increase in their Part B premium being greater than the amount of the Social Security cost-of-living adjustment (COLA)”.
To qualify for this provision a beneficiary must:
- Already be receiving Social Security benefits for the current year.
- Pay their Medicare Part B premium automatically through their Social Security benefit.
In laymen terms if you are receiving Social Security benefits while in Medicare Part B the next year’s Medicare Part B premium can not reduce your next year’s Social Security benefit.
So if you are receiving $2,000 a month in Social Security benefits and the next year there is a 0.00% percent COLA and the Medicare Part B premium increases you will NOT be responsible for that new Medicare Part B premium.
You will receive the exact same amount in Social Security benefits as the previous year.
An example of the Hold Harmless Act in action – years between 2015 – 2018:
- 2015: Medicare Part B premium = $104.90 a month.
- 2016: Medicare Part B premium grew by 16.11% while Social Security did NOT release a COLA for that year.
The result: The Medicare Part B premium rose to $121.80 a month, but due to the Hold Harmless Act every retiree was “held harmless”. Meaning their Part B premiums stayed at $104.90 a month and their Social Security benefit remained at the same.
- 2017: The Medicare Part B premium grew by another by 10% making that premium total $134.00 a month while Social Security’s COLA was 0.3 percent or $5.00 on average a month.
The result: Again, the Hold Harmless Act was implemented, and every retiree realized only a $5.00 a month increase in their Medicare Part B premiums while their Social Security benefit remained the same again for a 3rd consecutive year.
- 2018: Medicare did not have an increase in the Part B premium while Social Security released a 2.0% COLA or roughly $5.00 a month increase for the average Social Security recipient.
The result: Retirees who were Held Harmless in 2017 realized an increase in Medicare Part B premiums to $134.00 a month while their Social Security COLA was consumed by as much as 88%.
The Hold Harmless Act, for these 4 years, worked flawlessly for many retirees. Due to its construction the majority of retirees realized a Medicare premium that remained almost constant even though their Social Security benefit never increased.
Here is a chart breaking down the last 4 years:
|Medicare Part B||Social Security COLA||Avg. Social Security Increase||Avg. Retiree’s Medicare Premium||Difference Medicare premium to Social Security benefit|
The problem, though, is that the Hold Harmless Act is NOT for everyone.
In 2009 Congress, through the “Medicare Premium Fairness Act”, revamped the Hold Harmless Act to exclude retirees who happened to fall into Medicare’s Income Related Monthly Adjustment Amount (IRMAA).
IRMAA applies to people with higher incomes who are enrolled in Part B and/or covered under a Medicare Part D Prescription Drug Plan. If they happened to be earning too much income in retirement they will be assessed a surcharge on top of those premiums.
The result: Any retiree who happened to earn too much income in retirement realized a loss in Social Security income in 2016 and 2017.
Their one advantage for them though is that in 2018, since they were already at the 2017 Medicare Part B premium of $134.00 a month, their Social Security benefit did increase.