If you sign up for Medicare, you’re probably already receiving Social Security benefits. Those benefits increase using what is known as COLA, which stands for “cost of living adjustment.” But the government also has protections in place to ensure your Social Security Part B premium increase under Medicare doesn’t wipe out your Social Security payment increase. This is what’s known as a “hold harmless provision.”

But the hold harmless provision does have some exceptions. If you’re receiving Social Security benefits and paying premiums for Medicare Part B, it’s important to know how premium increases may affect your Social Security income.

What Is the Medicare Hold Harmless Provision?

What is the hold harmless provision in Medicare? It sounds like a fancy legal term, but it’s actually a simple protection put in place for recipients. It ensures that this year’s Medicare premium increases won’t completely eliminate the cost of living increase you received this year.

Here’s an example of the Medicare Part B hold harmless provision. In 2023, standard Medicare Part B premiums are $164.90, down $5.20 from 2022’s standard premiums. In 2020, the COLA for Social Security recipients was 1.6 percent. If you’re getting $1500 a month in Social Security, your increase would have been $24. If, however, your Medicare premiums had gone up more than $24 for 2020, the hold harmless provision would have capped that increase to ensure you didn’t see a decline in your monthly Social Security payments.

Hold Harmless Provision Requirements

Once you understand what the hold harmless agreement represents in Medicare, it’s time to look at some of the exceptions to the provision. In order to cap your Medicare increases, you have to meet the following criteria as a Social Security recipient:

• You must have been entitled to benefits in both November and December of the current year.
• Medicare Part B premiums must have been deducted from your Social Security income from November to January.
• Your Part B premiums are already higher because of Income-Related Monthly Adjustment Amount, a situation that applies to higher-income recipients.

Special Considerations

COLA has been pretty good to Social Security recipients in recent years. But it wasn’t too long ago that the economy was suffering, leading the COLA to fall to zero. In 2016, this was the case for only the third time in 40 years. The cost of Medicare for social security recipients had to stay stagnant because of the hold harmless provision.

As recently as 2016, 70 percent of enrollees didn’t see the Medicare rate hike because of the provision. But that doesn’t stop Medicare from boosting premiums to offset the loss. Those hikes may be paid by the people who aren’t protected by the provision or made up in future years, when COLA allows Social Security payments to begin outpacing the rise in Medicare premiums once again.

Final Thoughts

Inflation is inevitable, but at least Social Security recipients know they’ll get a raise to compensate for it. Medicare premiums could increase, as well, though. Thanks to the hold harmless provision, Social Security recipients have the confidence of knowing they won’t lose money because premiums increased more than the cost of living. If you’re currently planning your retirement, a Certified Financial Planner® can help you account for those years when your premiums will rise almost as much as your COLA.

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