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.
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 2018, the COLA is 2.0%. In 2017, the COLA was 0.3%, in 2016, there was no COLA, and in 2015, the COLA was 1.7%. In 2014, the COLA was 1.5%.
Medicare premiums have ridden steadily every year until now. The monthly premium for Medicare Part B rose to $134 in 2018, up from $109 in 2017, up from $121.80 in 2016. (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 there is a Medicare Part B premium increase and a low or no COLA, as in 2010, 2011, and 2013, the hold harmless rule helps many people. The vast majority of Medicare recipients have their Part B premiums automatically deducted from their Social Security payments every month. When Medicare premiums were climbing each year, without the COLA keeping pace, it was possible for a Social Security recipient to have a reduction in their Social Security check to pay for the increased Medicare premium. Fortunately, the "hold harmless" rule prevented that from happening for most Social Security recipients.
Almost half of Part B Medicare recipients who are subject to the hold-harmless provision for 2018 will pay the full monthly premium of $134 because the 2% increase in Social Security will cover the increased Part B premiums. And almost one third of Part B recipients who are covered by the hold-harmless provision will pay less than $134 because the 2% increase in their Social Security benefits will not be large enough to cover the full Part B premium increase.
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.