When you sign up for Medicare, you might already be receiving Social Security benefits, which are adjusted each year through a Cost of Living Adjustment (COLA) to help you keep up with inflation. However, rising healthcare costs, particularly increases in Medicare Part B premiums, can reduce the impact of these COLA increases. To prevent Social Security recipients from losing income when Medicare premiums rise faster than COLA, the Medicare Hold Harmless Provision ensures that Medicare premium hikes do not reduce your monthly Social Security payments.

What Is the Medicare Hold Harmless Provision?

The Medicare Hold Harmless Provision is a rule that ensures your Medicare Part B premium increase does not exceed the increase in your Social Security benefits due to COLA. In other words, your Social Security check will not decrease because of rising Medicare premiums. This protection applies to most—but not all—Social Security beneficiaries.

It’s important to note that the Hold Harmless Provision only applies to Medicare Part B premiums that are deducted directly from Social Security benefits. It does not apply to Part A or Part D premiums, which are handled separately.

For example, in 2023, the standard Medicare Part B premium was $164.90. If the COLA increase to your Social Security benefits does not cover the premium hike, the Hold Harmless Provision caps your Medicare increase so that your net Social Security income doesn't decrease.

Who Qualifies for the Hold Harmless Provision?

While this provision applies to many people, not all Social Security recipients are eligible. To qualify, you must meet the following conditions:

• You must have been entitled to Social Security benefits for November and December of the current year.
• Medicare Part B premiums must be deducted from your Social Security benefits.
• You must not pay higher premiums due to the Income-Related Monthly Adjustment Amount (IRMAA), which applies to higher-income individuals.

Special Exemptions

High-Income Earners and IRMAA

If your income exceeds $97,000 (or $194,000 for joint filers) in 2023, you will pay an IRMAA surcharge, which disqualifies you from Hold Harmless protection. Your Medicare Part B premiums are tied to your income level, so you may see higher-than-standard premium increases.

Medicaid and Dual-Eligible Individuals

People who qualify for both Medicaid and Medicare (approximately 10 million beneficiaries) are also not protected by the Hold Harmless Provision because their Medicare premiums are typically paid by the state.

Non-Social Security Recipients

If you are on Medicare but have not yet started receiving Social Security benefits, you will pay any increase in Medicare Part B premiums in full. The Hold Harmless Provision only applies to those receiving Social Security.

How the Hold Harmless Provision Affects Medicare Premiums

While the Hold Harmless Provision protects many beneficiaries, its financial impact on the system is significant. Because the majority (around 70%) of Medicare recipients are protected, the remaining 30%—those not covered by the provision—may face higher premiums to compensate. Medicare Part B premiums are supposed to cover 25% of the cost of outpatient services, with the federal government covering the remaining 75%. When COLA increases, which are based on inflation, are low and Medicare premiums rise, the cost difference falls on those not protected by the Hold Harmless rule.

Example Scenarios

Example #1:

A Social Security recipient receives $1,500 per month. If their COLA increase is 5%, that adds $75 to their monthly income. However, if Medicare Part B premiums rise by $80, the Hold Harmless Provision will limit the premium increase to $75, ensuring their net Social Security income doesn’t decrease.

Example #2:

In years with low inflation, such as 2017 when the COLA was only 0.3%, Social Security checks increased by just $4 per month. In the same year, Medicare Part B premiums rose by $12.20. Thanks to the Hold Harmless Provision, 70% of Medicare recipients only paid $109 per month in premiums instead of the standard $134.

Planning for Rising Medicare Premiums

If you’re planning for retirement, it’s essential to factor in rising healthcare costs, including Medicare premiums. While the Hold Harmless Provision offers protection, it is limited to specific circumstances. Planning ahead can help ensure you won’t be caught off guard by premium increases.

Maximize Your Social Security Benefits

Delay your Social Security benefits until age 70 to maximize your monthly payments. This strategy can help absorb future increases in Medicare premiums. However, delaying retirement may not be feasible for everyone due to health or financial reasons, so planning with a professional is advised.

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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Frequently Asked Questions

What is the Medicare Hold Harmless Provision?

The Medicare Hold Harmless Provision protects Social Security recipients from losing net income due to Medicare Part B premium increases that exceed their COLA increase.

Who is exempt from the Hold Harmless Provision?

Those subject to IRMAA due to high income, individuals on Medicaid, and those not receiving Social Security benefits are exempt from Hold Harmless protection.

Does the Hold Harmless Provision apply to Medicare Part A and Part D premiums?

No, the provision only applies to Medicare Part B premiums deducted from Social Security benefits. Part A and Part D premiums are not covered under this protection.

What happens if Medicare premiums rise faster than COLA?

If your Medicare Part B premiums rise faster than your COLA increase, the Hold Harmless Provision ensures that your net Social Security income does not decrease.

Can I still be affected by premium increases if I’m protected by Hold Harmless?

While the provision caps the increase, it does not eliminate it. If Medicare premiums rise significantly, your COLA increase may be used entirely to cover the new premium, leaving you with no net increase in your monthly income.