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Without Congressional Action, Medicare Part B Premiums Could Rise Substantially

By Peter Fise

Friday, September 30, 2016

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The release of this month’s updated inflation estimates from the Bureau of Labor Statistics (BLS) show that there is a good chance certain Medicare patients will face a 22 percent increase in Medicare Part B premiums. Today, roughly one-third of Medicare beneficiaries are not protected by the so-called “hold-harmless” provision that governs Part B premium adjustments, and would be subjected to substantial premium hikes. This hold-harmless protection caps Part B premium increases for hold-harmless-applicable beneficiaries at the rate of the Social Security Cost of Living Adjustment (COLA) increase for the year, and requires that the lost Part B premium revenue resulting from that cap must be recouped through substantial corresponding increases in Part B premiums for the remaining “non-hold-harmless” beneficiaries.

The hold-harmless protection applies to roughly 70 percent of beneficiaries whose Part B premiums are paid through deductions in their monthly Social Security benefits (and who are not required to pay income-indexed additional premium amounts). By contrast, the non-hold-harmless beneficiaries include those who do not receive Social Security payments, are newly enrolled in Medicare, or qualify for the Medicare Savings Program and/or have their premiums paid by state Medicaid programs.

Roughly one-third of Medicare beneficiaries are not protected by the so-called “hold-harmless” provision that governs Part B premium adjustments.

Last year, the Social Security Administration confirmed that there would not be a Social Security COLA for 2016, which would have triggered the hold-harmless protection and a corresponding 52 percent increase in 2016 Part B premiums for the non-hold-harmless population. However, as a part of the Bipartisan Budget Act of 2015 (“BBA 15”), Congress established a policy for 2016 to limit the increase in Part B premiums for the non-hold-harmless population to the lower monthly Part B premium amount that would have applied in the absence of the hold-harmless provision (i.e., only a 16 percent premium increase). BBA 15 also provided that if there was no COLA for 2017, the same policy would apply—and 2017 Part B premiums for non-hold-harmless beneficiaries would be set at the lower amount that would have applied in the absence of the hold-harmless provision.

However, the BBA 15 “fix” policy would not provide a solution in 2017 for instances where the COLA was above zero percent, but significantly less than growth rate of Medicare Part B spending. In June, the Medicare Trustees projected that the 2017 COLA would be 0.2 percent, an amount which would not trigger the BBA 15 fix, but would also be much less than expected aggregate Medicare Part B spending growth for 2017. As a result, the trustees projected that the 2017 base Medicare Part B premium for non-hold-harmless beneficiaries would need to be raised from $121.80 per month to $149.00 per month, a 22 percent increase.

The recent BLS update on the inflation measure upon which the COLA determination is based—the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W)—indicates an inflation trend line that would support the trustees interim projection of a 0.2 percent COLA for 2017. Barring a dramatic change in the CPI-W trend in September 2016, the Social Security Administration will likely announce in October a small COLA for 2017, which would result in the substantial premium increase for the non-hold-harmless population next year.

Medicare Part B premiums help to finance Medicare coverage of hospital outpatient services, care from physicians and other professionals, clinical laboratory services, dialysis, certain types of home health care, and durable medical equipment, among other items and services. Part B premium levels are set each autumn by the Centers for Medicare and Medicaid Services, and are designed to ensure that Part B premiums paid by Medicare beneficiaries will account for 25 percent of expected Medicare Part B costs for the upcoming calendar year. Beneficiaries with higher incomes pay additional income-indexed premium amounts, beyond the “base” Part B premium. The base Part B premium amount is updated for the following year by an amount that is based upon the expected rate of aggregate Part B spending growth for the upcoming year.

Heightened premiums in 2017 for the non-hold-harmless population could also have a detrimental impact on state Medicaid budgets.

Given that a significant portion of non-hold-harmless beneficiaries are individuals whose Medicare Part B premiums are paid by State Medicaid programs, heightened premiums in 2017 for the non-hold-harmless population could also have a detrimental impact on state Medicaid budgets, as highlighted recently by State Medicaid Directors.

In BBA 15, Congress offset the $7.4 billion in lost Part B premium revenue for 2016 that resulted from the non-hold-harmless fix by requiring a monthly $3 surcharge to be added to Medicare premium amounts for all beneficiaries, beginning in 2016 and ending when the foregone 2016 premium revenue is completely recovered. If Congress seeks to apply another non-hold-harmless fix for 2017, the lost 2017 premium revenue could potentially be offset through a similar monthly surcharge add-on. However, it should also be noted that legislative precedent for non-hold-harmless fixes is mixed, as Congress allowed for a sizable increase in Part B premiums to take effect in 2010 for the non-hold-harmless population.