There is a special rule for Social Security recipients, called the “hold harmless rule,” that ensures that Social Security checks will not decline from one year to the next because of increases in Medicare Part B premiums. The hold harmless rule applies to most, but not all, Social Security recipients. Most people who receive Social Security disability or retirement benefits and Medicare Part B (coverage for doctor visits) are eligible for protection under this rule. Whether this rule comes into play in a particular year depends on the amount of COLA and the Medicare Part B premium increase.
How Much Is Social Security's COLA in 2013?
Every year, an annual cost of living adjustment (COLA) is made to Social Security payments to keep pace with inflation. The idea is to give Social Security recipients enough money so that they can afford higher consumer prices. The COLA is calculated every year and is based on the difference in the consumer price index (CPI) from the end of the third quarter of one year to the next. COLA usually causes Social Security checks to go up, but when consumer prices drop, the COLA is lower or is eliminated altogether.
In 2013, the COLA is 1.7%. In 2012, the COLA was 3.6%, but in 2011 and 2010, there was no COLA.
How Much Is the Medicare Part B Premium in 2013?
Medicare premiums have been steadily rising every year. The monthly premium for Medicare Part B will rise 5% to $104.90 in 2013, up from $99.90. (Medicare Part B pays for outpatient services like doctor visits and medical equipment. Medicare Part B is optional, but most Medicare recipients opt to receive Part B.)
When Does the Hold Harmless Rule Take Effect?
The vast majority of Medicare recipients have their Part B premiums automatically deducted from their Social Security payments every month. Because Medicare premiums have been climbing each year and the COLA has not always kept pace, it is possible for a Social Security recipient to have a reduction in their Social Security check to pay for the Medicare premium. Fortunately, the "hold harmless" rule prevents that from happening for most Social Security recipients.
Who Does the Hold Harmless Rule Protect?
The hold harmless rule applies to all Social Security recipients except the wealthy (defined as those earning $85,000 for an individual or $170,000 for a married couple) and those who are receiving Medicare for the first year. In addition, there are low-income Medicare recipients whose Medicare premiums are paid by their state Medicaid agencies, and those premiums are not protected by the hold harmless provision.
The hold harmless rule also does not apply to the Medicare Part D (prescription drug) premium, but that program just started in 2006 and has not seen significant premium increases yet.
How Much Can I Expect in My 2013 Social Security Check?
In 2013, the increase in Medicare Part B premium is not as high as some had forecast, and so most Social Security recipients will see some small increase in their monthly benefit amount because of the COLA. Only Social Security recipients whose monthly benefits are less than $300 will see no increase from their 2012 benefit amounts. The hold harmless provision will protect some in that small group from a decreased Social Security benefit in 2013.
However, Social Security recipients whose incomes are above the $85,000/$170,000 limit will see increases in their Medicare part B premiums, and Medicare will impose additional charges that increase with the recipient's income level. As a result, their Social Security checks may be smaller.