Potential Impact of No Social Security COLA on Medicare Part B Premiums in 2016

Potential Impact of No Social Security COLA on Medicare Part B Premiums in 2016
Potential Impact of No Social Security COLA
on Medicare Part B Premiums in 2016
Patricia A. Davis
Specialist in Health Care Financing
October 20, 2015
Congressional Research Service
7-5700
www.crs.gov
R44224
Potential Impact of No Social Security COLA on Medicare Part B Premiums in 2016
Summary
Medicare Part B covers physician services, outpatient care, durable medical equipment,
laboratory services, and some home health services. Most beneficiaries pay a monthly Part B
premium that is set at a rate to cover about 25% of the costs of Part B. The General Fund of the
U.S. Treasury covers most of the remaining costs.
These monthly Medicare Part B premiums are automatically deducted from the checks of Social
Security beneficiaries. Current projections indicate that there will be no Social Security cost-ofliving adjustment (COLA) in 2016, which means that monthly Social Security benefit amounts
will not be increased. However, total Medicare Part B program costs are expected to grow.
Because Part B premiums must cover 25% of projected Part B costs, premiums are also expected
to increase.
The Social Security Act (SSA) includes a provision that holds most Social Security beneficiaries
harmless from increases in the Medicare Part B premium that exceed the dollar amount of the
increase in their Social Security checks. Affected beneficiaries’ Part B premiums are reduced to
ensure that their Social Security checks do not decline from one year to the next. In a typical year,
the hold-harmless provision affects a small fraction of beneficiaries and has a limited impact on
program finances. However, in a scenario where Medicare Part B premiums increase but Social
Security benefits do not, such as in 2010 and 2011, the effects of the hold-harmless provision are
larger and more complex.
If there were to be no Social Security COLA in 2016, Medicare Part B premiums would be
affected in two ways. For about 70% of Part B participants, the hold-harmless provision would
prevent their Part B premiums from increasing, so their Social Security checks would remain the
same. For the other 30% of beneficiaries, the hold-harmless provision would not apply. These
individuals would shoulder the entire beneficiary share of the increase in Part B costs.
The hold-harmless provision does not apply to four main groups of beneficiaries (there may be
some overlap among groups):




Low-income beneficiaries whose Part B premiums are paid by the Medicaid program
(about 19% of beneficiaries);
High-income beneficiaries who are subject to income-related Part B premiums (about
6% of beneficiaries);
Those whose Medicare premiums are not deducted from Social Security benefits
(about 3% of beneficiaries); and
New enrollees in 2016 (about 5% of beneficiaries).
Additionally, late-enrollment premium surcharges would be based on the premium amount of
those not held harmless. Thus, those held harmless in 2016 who pay a late-enrollment penalty
may still see reduced Social Security benefits as a result of the increased surcharges.
The substantial majority of those not held harmless are low-income beneficiaries whose Part B
premiums are paid by the federal-state Medicaid program. As a result, most of the cost of the
increase in Part B premiums in 2016 would be paid by Medicaid.
The statutory formula for determining the general revenue portion of Part B funding is based on
aggregate beneficiary premiums. Therefore, unless Part B premiums are increased substantially
on those who are not held harmless, the Supplementary Medical Insurance (SMI) Trust Fund,
which finances Part B, would be at risk of exhaustion during the year.
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Potential Impact of No Social Security COLA on Medicare Part B Premiums in 2016
On October 15, 2015, the Social Security Administration announced that there would be no
Social Security COLA in 2016. As of the date of this report, the Centers for Medicare & Medicaid
Services had not yet announced the Medicare Part B premiums and deductibles for 2016. This
report will be updated after that announcement.
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Potential Impact of No Social Security COLA on Medicare Part B Premiums in 2016
Contents
Introduction ..................................................................................................................................... 1
Medicare Part B Premiums .............................................................................................................. 2
Calculation of the 2015 Premium.............................................................................................. 3
Income-Related Part B Premiums ............................................................................................. 3
Part B Premium Assistance for Low-Income Beneficiaries ...................................................... 5
Late-Enrollment Premium Surcharge ........................................................................................ 6
Payment of Premiums ..................................................................................................................... 6
Social Security COLAs ................................................................................................................... 8
Medicare Part B Premiums Expected to Increase in 2016 .............................................................. 8
Protection of Social Security Benefits from Increases in Medicare Part B Premiums .................. 10
Some Beneficiaries Are Not Protected by the Hold-Harmless Provision ................................ 11
What Happens in the Absence of a Social Security COLA? ......................................................... 13
Effect on Those Not Held Harmless........................................................................................ 13
Application of the Hold-Harmless Provision in 2010 and 2011 ............................................. 13
Potential Application of the Hold-Harmless Provision in 2016 .................................................... 15
Impact on Beneficiaries........................................................................................................... 16
Most Beneficiaries Would Be Held Harmless................................................................... 16
Some Beneficiaries Would Not Be Held Harmless........................................................... 16
Impact on Medicare and Medicaid Financing ......................................................................... 18
Medicare Part B (SMI) Trust Fund Impact ....................................................................... 18
Medicaid Impact ............................................................................................................... 19
Expected Increase in Deductibles ........................................................................................... 19
Legislative Activity ....................................................................................................................... 20
Figures
Figure A-1. Actual and Projected Medicare Part B Premium Growth .......................................... 22
Tables
Table 1. Monthly Medicare Part B Premiums for 2015................................................................... 4
Table 2. Application of the Hold-Harmless Provision Under Hypothetical Scenarios ................... 11
Table 3. Monthly Medicare Part B Premiums in Years 2009–2012 .............................................. 15
Table 4. Monthly Medicare Part B Premiums for 2015 and Projected 2016 Premiums ................ 17
Table 5. Estimated Number of Beneficiaries Impacted by the Hold-Harmless Provision in
2016 ............................................................................................................................................ 18
Appendixes
Appendix A. Medicare Part B Premium Trends ............................................................................ 22
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Potential Impact of No Social Security COLA on Medicare Part B Premiums in 2016
Contacts
Author Contact Information .......................................................................................................... 22
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Potential Impact of No Social Security COLA on Medicare Part B Premiums in 2016
Introduction
Medicare is a federal insurance program that pays for covered health care services of most
individuals aged 65 and older and certain disabled persons. In 2015, the program is expected to
cover about 55 million persons (46 million aged and 9 million disabled) at a total cost of $649
billion. Most individuals (or their spouses) aged 65 and older who have worked in covered
employment and paid Medicare payroll taxes for 40 quarters receive premium-free Medicare Part
A (Hospital Insurance). Those entitled to Medicare Part A have the option of enrolling in
Medicare Part B, which provides coverage for physicians’ services, outpatient hospital services,
durable medical equipment, outpatient dialysis, and other medical services. Most beneficiaries
(about 92%) with Part A also enroll in Part B. Beneficiaries who choose to receive coverage
through a Medicare Advantage (MA) plan (Part C) must enroll in both Medicare Part A and
Medicare Part B. Part D provides optional outpatient prescription drug coverage.1
Whereas Part A is financed primarily by payroll taxes paid by current workers, Part B is financed
through a combination of beneficiary premiums and funds transferred from the General Fund of
the U.S. Treasury.2 The Medicare Trustees estimate that in 2015, Part B spending will reach $281
billion. About $70 billion of that amount is expected to be paid for by beneficiary premiums, and
most of the rest is expected to be paid from general revenues.3
In addition to premiums, Part B beneficiaries must pay other out-of-pocket costs when they use
services. In 2015, the annual deductible for Part B services is $147. After the annual deductible is
met, beneficiaries are responsible for coinsurance costs, which are generally 20% of Medicareapproved Part B expenses.4 Most Medicare beneficiaries have some coverage in addition to
Medicare that helps to pay for deductibles and coinsurance. This additional coverage can include
coverage through Medicaid,5 private insurance policies that supplement Medicare (Medigap),6 or
retiree coverage through a former employer.
By statute, Part B premiums, which are deducted automatically from Social Security checks for
those who receive Social Security, must cover 25% of projected annual Part B per capita costs for
aged beneficiaries. The Social Security Act (SSA) includes a provision that holds most Social
Security and Railroad Retirement Board beneficiaries harmless for increases in their Medicare
Part B premiums that exceed the dollar amount of the increase in their Social Security checks.
Affected beneficiaries’ Part B premiums are reduced to ensure that their Social Security benefit
checks do not decline from one year to the next.
1
For additional information on the Medicare program, see CRS Report R40425, Medicare Primer, coordinated by
Patricia A. Davis and Scott R. Talaga.
2
See CRS Report R43122, Medicare Financial Status: In Brief, by Patricia A. Davis.
3
Boards of Trustees, Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, 2015
Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplemental Medical
Insurance Trust Funds, July 22, 2015, Table III.C4, at https://www.cms.gov/Research-Statistics-Data-and-Systems/
Statistics-Trends-and-Reports/ReportsTrustFunds/Downloads/TR2015.pdf. Hereinafter Medicare Trustees, 2015
Annual Report.
4
Deductibles and coinsurance paid by beneficiaries are not included in estimates of Medicare spending or income
because those monies do not flow in and out of the Medicare program. Rather, these amounts are paid to health care
providers as part of their reimbursement for covered services provided to beneficiaries.
5
See CRS Report R43357, Medicaid: An Overview, coordinated by Alison Mitchell.
6
See CRS Report R42745, Medigap: A Primer, by Carol Rapaport.
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Potential Impact of No Social Security COLA on Medicare Part B Premiums in 2016
In a typical year, this hold-harmless provision affects a small fraction of beneficiaries and has a
limited impact on program finances. However, in a year in which Medicare Part B premiums
increase but Social Security benefits do not, the effects of the hold-harmless provision are larger
and more complex.
This report provides an overview of Medicare Part B premiums, the relationship between the
Social Security cost-of-living increase (COLA) and Part B premiums, and the potential impact of
a projected 0% Social Security COLA in 2016 on Medicare premiums, based on recent
projections by the Medicare Trustees.
On October 15, 2015, the Social Security Administration announced that there would be no Social Security COLA in
2016. As of the date of this report, the Centers for Medicare & Medicaid Services had not yet announced the
Medicare Part B premiums and deductibles for 2016. This report will be updated after that announcement
Medicare Part B Premiums
Most people who elect to participate in the Medicare Part B program pay the Part B premium.7
The standard Part B premium is a single national amount that does not vary with a beneficiary’s
age, health status, or place of residence. Premiums may be adjusted, however, for late enrollment
and for beneficiaries with high incomes. In 2015, the standard Medicare Part B premium is
$104.90 per month.
Under normal circumstances, the standard premium is set to cover about 25% of the average per
enrollee cost of Part B benefits. Therefore, changes in the Part B premium over time generally
reflect the growth in total Part B expenditures.8 Part B costs not covered by premiums are paid for
through transfers from the General Fund of the Treasury. In other words, Medicare beneficiaries
receive a 75% subsidy for Part B—every $1 in Part B premiums (for aged enrollees) is matched
by $3 in general revenues. All income for Part B is credited to the Part B account of the
Supplementary Medical Insurance (SMI) Trust Fund.
While both aged and disabled Medicare beneficiaries pay the same Part B premium, the statute
provides that Part B premiums are to be based only on the expected program costs—that is, the
monthly actuarial rate—for the aged (those 65 years of age and older).9 (The actuarial rate for
the aged is defined as one-half of the expected average monthly per capita program costs for the
aged.) The monthly actuarial rates for both aged and disabled enrollees, however, are used to
determine the needed amount of matching general revenue funding.10
Each year, the Centers for Medicare & Medicaid Services (CMS) actuaries estimate total per
capita Part B costs for beneficiaries aged 65 and older for the following year and set the Part B
7
For further information, see CRS Report R40082, Medicare: Part B Premiums, by Patricia A. Davis.
The exact relationship between Part B expenditures covered by the Part B premium has been changed by statute at
various points. Most recently, the Balanced Budget Act of 1997 (BBA; P.L. 105-33) permanently set the standard
Medicare Part B premiums to total 25% of estimated program costs for the aged. See CRS Report R40082, Medicare:
Part B Premiums, by Patricia A. Davis.
9
Social Security Act (SSA) §1839(a).
10
The actuarial rate for the disabled is defined as one-half of the expected average monthly cost per disabled enrollee.
Average per capita costs for the disabled are generally higher than those for the aged; therefore, were their average
costs included in the premium determination, all Part B enrollees would pay higher premiums. As general revenue
funding is determined using both the average costs of the aged and disabled, this funding is sufficient to compensate for
the reduction in premiums due to not including the costs of the disabled in determining the premium amount.
8
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Potential Impact of No Social Security COLA on Medicare Part B Premiums in 2016
premium to cover 25% of these expected expenditures. Because prospective estimates may differ
from actual spending for the year, contingency margin adjustments are made to ensure sufficient
income to accommodate potential variation in actual expenditures during the year. Once the
premium has been set for a given year, it will not be changed during that year.
Calculation of the 2015 Premium
To determine the standard 2015 monthly Part B premium amount, CMS first estimated the
monthly actuarial rate for enrollees aged 65 and older using actual per enrollee costs by type of
service from program data through 2013 and projected costs for subsequent years. For 2015,
CMS estimated that the monthly amount needed to cover one-half of the total benefit and
administration costs for the aged would be $208.61. However, because of expected variations
between projected and actual costs, a contingency adjustment of $3.41 was added to this amount.
After a reduction of $2.22 to account for expected interest on trust fund assets, the monthly
actuarial rate for the aged was determined to be $209.80. As premiums are based only on
projections of expected costs of the aged, the 2015 Part B premium amount is one-half of
$209.80, or $104.90 per month (25% of the monthly expected per capita costs of the aged).
The contingency margin is the amount set aside to cover variation between actual and projected
costs.11 In recent years, CMS has noted that Part B expenditures have been higher than expected
under current law. In some cases, legislation that resulted in increased Medicare Part B
expenditures for the year was enacted after the premium for the year had been set. For example,
in calculating the premium for 2015, CMS recognized the possibility that Congress might
override the scheduled physician payment reduction under the Sustainable Growth Rate formula
of about 21.1% in physician fees beginning in April 2015 (thereby significantly increasing Part B
expenses). As a result, CMS provided for the maintenance of a somewhat higher contingency
margin than would otherwise be necessary in calculating the 2015 premium. Certain payments are
excluded from the determination of the contingency margin,12 and additional revenues from a fee
paid by manufacturers and importers of brand-name drugs reduce the needed contingency margin.
The 2015 contingency margin adjustment of $3.41 reflects the expected net effects of all of these
factors.
Income-Related Part B Premiums
The Medicare Modernization Act of 2003 (MMA; P.L. 108-173) required that high-income
enrollees in Medicare Part B pay higher premiums beginning in 2007.13 In 2015, about 5.6% of
Medicare beneficiaries pay these higher premiums.14 For high-income beneficiaries, adjustments
are made to the standard Part B premiums, with the share of expenditures paid by beneficiaries
increasing with income. This share ranges from 35% to 80% of the value of Part B coverage (as
11
SSA §1839(a) requires that the Secretary include an “appropriate amount” for a contingency margin when
calculating the monthly actuarial rate.
12
Certain payment incentives to encourage the development and use of health information technology (HIT) by
Medicare physicians are excluded from premium determinations. HIT bonuses or penalties are directly offset through
transfers of general funds from the Treasury.
13
The Medicare Modernization Act of 2003 (MMA; P.L. 108-173) would have phased in the increase over five years;
however, the Deficit Reduction Act of 2005 (DRA; P.L. 109-171) shortened the phase-in period to three years.
14
Calculation based on Social Security Administration, “2015 Social Security/SSI/Medicare Information,” at
http://www.ssa.gov/legislation/2015%20Fact%20Sheet.pdf.
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Potential Impact of No Social Security COLA on Medicare Part B Premiums in 2016
opposed to the standard 25%).15 High-income adjustments to Part B premiums are referred to as
the income-related monthly adjustment amount (IRMAA). In 2015, individuals whose incomes
exceed $85,000 and couples whose incomes exceed $170,000 are subject to higher premium
amounts. Depending on their level of income, beneficiaries may be classified into one of five
income categories. (See Table 1.)
To determine who is subject to the high-income premium, the Social Security Administration uses
an individual’s most recent federal tax return, provided by the Internal Revenue Service. In
general, the taxable year used in determining the premium is the second calendar year preceding
the applicable year. For example, the 2014 tax return (with 2013 income) was used to determine
who would pay the 2015 high-income premiums.16 The income definition on which these
premiums are based is modified adjusted gross income (MAGI).17 If a person had a one-time
increase in taxable income in a particular year, such as from the sale of property,18 that increase
would be considered in determining the individual’s total income for that year and thus his or her
liability for the income-related premium two years ahead. This one-time increase would not be
considered in the calculations for future years.
Table 1. Monthly Medicare Part B Premiums for 2015
IncomeRelated
Monthly
Adjustment
Amount
(IRMAA)
Total
Monthly
Premium
(standard
premium +
adjustment)
Levels of Premium
Adjustment and
Percentage of
Costs Covered by
Premiums
Beneficiaries Who File an
Individual Tax Return with
Income
Standard (25%)
Less than or equal to $85,000
Less than or equal to $170,000
$0.00
$104.90
Level 1 (35%)
Greater than $85,000 and less
than or equal to $107,000
Greater than $170,000 and less
than or equal to $214,000
$42.00
$146.90
Level 2 (50%)
Greater than $107,000 and less
than or equal to $160,000
Greater than $214,000 and less
than or equal to $320,000
$104.90
$209.80
Level 3 (65%)
Greater than $160,000 and less
than or equal to $214,000
Greater than $320,000 and less
than or equal to $428,000
$167.80
$272.70
Level 4 (80%)
Greater than $214,000
Greater than $428,000
$230.80
$335.70
Beneficiaries Who File a
Joint Tax Return with
Income
Source: Centers for Medicare & Medicaid Services (CMS), “Medicare Program: Medicare Part B Monthly
Actuarial Rates, Premium Rate, and Annual Deductible Beginning January 1, 2015,” 79 Federal Register 61314,
October 10, 2014.
Note: The income thresholds above will remain the same through 2017.
15
Social Security Act (SSA) §1839(i).
If an enrollee amended his or her tax return and the amendment changed the income used to determine the highincome adjustments, the updated information may be provided to the Social Security Administration so that the
administration may correct or remove the income-related monthly adjustment amounts.
17
Defined at SSA §1839(i)(4). See also Social Security Administration, Program Operations Manual System, “HI
01101.010: Modified Adjusted Gross Income (MAGI),” at https://secure.ssa.gov/poms.nsf/lnx/0601101010, and CRS
Report R43861, The Use of Modified Adjusted Gross Income (MAGI) in Federal Health Programs, coordinated by
Evelyne P. Baumrucker.
18
H.R. 3590, the House version of the Patient Protection and Affordable Care Act (ACA; P.L. 111-148, as amended),
included a provision that would have excluded income from the gains attributable to the sale of a primary residence
from the beneficiary’s MAGI in determining the Part B income-related premium. This provision was not included in
the final version of the ACA. See CRS Report R40898, Medicare Program Changes in H.R. 3962, Affordable Health
Care for America Act, coordinated by Patricia A. Davis.
16
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Potential Impact of No Social Security COLA on Medicare Part B Premiums in 2016
In the case of certain major life-changing events that result in a significant reduction in MAGI, an
individual may request to have the income determination made for a more recent year than the
second preceding year.19 These major events include death of a spouse; marriage; divorce; partial
or full work stoppage for the individual or spouse; loss by the individual or spouse of income
from income-producing property when the loss is not at the individual’s direction (such as in the
case of a natural disaster); or reduction or loss for the individual or spouse of pension income due
to termination or reorganization of the pension plan.20 Certain types of events, such as investment
losses or events that affect expenses but not income, are not considered major life-changing
events.21
Part B Premium Assistance for Low-Income Beneficiaries
Medicare beneficiaries who have limited income and assets may qualify for assistance with their
Part B premiums from state Medicaid programs. About one in five Medicare beneficiaries is
eligible to receive this assistance; these beneficiaries are commonly referred to as dual-eligibles.
Medicare beneficiaries who qualify for full Medicaid benefits (full dual-eligibles) have most of
their health care expenses paid for by either Medicare or Medicaid. For these individuals,
Medicaid covers the majority of Medicare premium and cost-sharing expenses. It also
supplements Medicare by providing coverage for services not covered under Medicare, such as
dental services and long-term services and supports.22
Beneficiaries who do not meet their respective state’s eligibility criteria for Medicaid may still
qualify for assistance with Part B premiums. Beneficiaries with incomes of less than 135% of the
federal poverty level (FPL)23 and assets of less than $7,280 for an individual or $10,930 for a
couple in 201524 may qualify for assistance programs that are commonly referred to as Medicare
Savings Programs (MSPs). (Beneficiaries enrolled in an MSP are referred to as partial dualeligibles.) Three of these MSPs provide coverage of Part B premiums. Aged or disabled persons
with incomes at or below FPL may qualify for the Qualified Medicare Beneficiaries (QMB)
program. In 2015, the QMB monthly qualifying income levels are $1,001 for individuals and
$1,348 for a couple.25 Individuals whose income is more than 100% but less than 120% of FPL
may qualify for assistance as a Specified Low-Income Medicare Beneficiary (SLMB). In 2015,
the monthly income limits to qualify as an SLMB are $1,197 for an individual and $1,613 for a
couple.
19
Social Security Administration, Form SSA-44, “Medicare Income-Related Monthly Adjustment Amount - LifeChanging Event,” at http://www.socialsecurity.gov/forms/ssa-44.pdf.
20
20 C.F.R. §418.1205.
21
20 C.F.R. §418.1210.
22
See CRS Report R43357, Medicaid: An Overview, coordinated by Alison Mitchell.
23
The federal poverty levels (FPLs) for 2015 are $11,770 per year for an individual and $15,930 for a couple. (These
levels are slightly higher in Alaska and Hawaii.) See U.S. Department of Health and Human Services, Office of the
Assistant Secretary for Planning and Evaluation, 2015 Poverty Guidelines, September 3, 2015, at http://aspe.hhs.gov/
2015-poverty-guidelines.
24
Income and asset requirements may vary by state and may change each year. These amounts do not include a burial
fund allowance of $1,500 per person.
25
The qualifying levels are slightly higher than the monthly FPL because, by law, $20 per month of unearned income is
disregarded in the calculation. See Social Security Administration, Program Operations Manual System, “HI
00815.023: Medicare Savings Programs Income Limits,” at https://secure.ssa.gov/poms.nsf/lnx/0600815023.
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Potential Impact of No Social Security COLA on Medicare Part B Premiums in 2016
Additionally, individuals whose income is between 120% and 135% of FPL may qualify for
assistance as Qualifying Individuals (QIs). In 2015, the monthly income limit for a QI is $1,345;
for a couple, it is $1,813. Unlike the QMB and SLMB programs, which are paid for by Medicaid
(joint federal-state spending),26 expenditures under the QI program are 100% paid for by the
federal government from the Medicare SMI Trust Fund up to a state’s allocation level.27 A state is
required to cover only the number of people that would bring its annual spending on these
population groups up to its allocation level; any expenditures beyond that level are voluntary and
paid entirely by the state.
Late-Enrollment Premium Surcharge
Beneficiaries who do not sign up for Part B when first eligible, or who drop it and then sign up
again later, may have to pay a late-enrollment penalty for as long as they are enrolled in Part B.28
Monthly premiums for Part B may go up 10% for each full 12-month period that one could have
had Part B but did not sign up for it. In 2014, about 1.4% of Part B enrollees (approximately
750,000 individuals) paid this penalty.29 On average, their total premiums (standard premium plus
penalty) were about 29% higher than they would have been had the enrollees not been subject to
the penalty.
The surcharge is calculated as a percentage of the monthly standard premium amount (e.g., in
2015, $104.90), and that amount is added to the beneficiary’s premium each month. For those
subject to the high-income premium, the late enrollment surcharge applies only to the standard
monthly premium amount and not to the higher income adjustment portion of their premiums.
There is no upper limit on the amount of the surcharge that may apply. Each year, the surcharge is
calculated using the standard premium amount for that particular year. Therefore, if premiums
increase in a given year, the dollar value of the surcharge will increase as well.
Under certain conditions, select beneficiaries are exempt from the late-enrollment penalty. These
exemptions include working individuals (and their spouses) with group coverage through their
current employment, some military retirees, and some international volunteers. Those who
receive premium assistance through an MSP do not pay the late-enrollment penalty.30
Payment of Premiums
Part B premiums may be paid in a variety of ways.31 If an enrollee is receiving Social Security or
Railroad Retirement benefits,32 the Part B premiums must, by law, be deducted from these
26
In general, Medicaid payments are normally shared between the federal government and the states according to
matching formulas.
27
For most recent allocations, see CMS, “Medicaid Program; State Allotments for Payment of Medicare Part B
Premiums for Qualifying Individuals (QIs): Federal Fiscal Years 2013 and 2014,” 80 Federal Register 31034, June 1,
2015, at http://www.gpo.gov/fdsys/pkg/FR-2015-06-01/pdf/2015-13043.pdf.
28
For more information, see Medicare.gov “Part B Late Enrollment Penalty,” at https://www.medicare.gov/yourmedicare-costs/part-b-costs/penalty/part-b-late-enrollment-penalty.html.
29
Figures provided to CRS by the Centers for Medicare & Medicaid Services (CMS), September 2015.
30
The state pays the standard premium regardless of the date on which the beneficiary first became eligible for
Medicare Part B. See Social Security Administration, Program Operations Manual System, “HI 00815.001: State BuyIn Program General Description,” at https://secure.ssa.gov/apps10/poms.nsf/lnx/0600815001; and Ibid., “HI
00815.039: Effect of Buy-In on the Individual,” at https://secure.ssa.gov/apps10/poms.nsf/lnx/0600815039.
31
Ibid., “HI 01001.020: Collection of Premiums,” at https://secure.ssa.gov/poms.nsf/lnx/0601001020.
32
SSA §1840(a)(1) and §1840(b)(1). See CRS Report R42035, Social Security Primer, by Dawn Nuschler and CRS
(continued...)
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Potential Impact of No Social Security COLA on Medicare Part B Premiums in 2016
benefits. Automatic deduction from the Social Security benefit check also applies to MA
participants who are enrolled in private health care plans in lieu of traditional Medicare.33
Additionally, Part B premiums are deducted from the benefits of those receiving a Federal Civil
Service Retirement annuity.34 The purpose of collecting premiums by deducting them from
benefits is to keep premium collection costs at minimum.
This withholding from benefits does not apply to those beneficiaries receiving state public
assistance through an MSP because their premiums are paid by their state Medicaid programs.
Additionally, premium payments may be made on behalf of Medicare beneficiaries by an
employee, union, lodge, or other organization, or by an entity of a state or local government if it
enters into a group-billing arrangement with CMS. Those approved as group billers include such
entities as city and county governments, state teacher retirement systems, and certain religious
orders.
Any Part B enrollees whose premiums are not deducted from Social Security, Railroad
Retirement, or Civil Service Retirement monthly benefits; paid by Medicaid; or paid under an
approved group-billing arrangement by a private organization must pay premiums directly to
CMS.35 For example, certain persons who spent their careers in employment that was not covered
by Social Security—including some federal,36 state, or local government workers—and certain
other categories of workers do not receive Social Security benefits but may still qualify for
Medicare. Additionally, some individuals aged 65 and older may have deferred signing up for
Social Security for various reasons, such as if they have not yet reached their full Social Security
retirement age37 or are still working. For these enrollees, Medicare will bill directly for their
premiums every three months.38 The enrollee who is being billed does not necessarily have to pay
his or her own premiums; premiums may be paid by the enrollee, a relative, friend, organization,
or anyone else.39 Nonpayment of premiums results in termination of enrollment in the Part B
program, although a grace period is allowed for beneficiaries who are billed and pay directly.40
(...continued)
Report RS22350, Railroad Retirement Board: Retirement, Survivor, Disability, Unemployment, and Sickness Benefits,
by Scott D. Szymendera.
33
Beneficiaries who receive their Parts A and B benefits through Medicare Advantage, must still pay the monthly Part
B premium, but they may pay different amounts. For example, some MA plans may offer an additional benefit by
reducing the amount one pays for the Part B premium.
34
See CRS Report 98-810, Federal Employees’ Retirement System: Benefits and Financing, by Katelin P. Isaacs.
35
42 C.F.R. §408.60.
36
Generally, employees of the federal government hired before 1984 are covered by the Civil Service Retirement
System (CSRS) and are not covered by Social Security. Most federal workers first hired into federal service on or after
January 1984 participate in the Federal Employees’ Retirement System (FERS), which includes Social Security
coverage. However, the Tax Equity and Fiscal Responsibility Act (P.L. 97-248) enabled federal workers to be eligible
for Medicare based on their federal employment. See CRS Report R42741, Laws Affecting the Federal Employees
Health Benefits (FEHB) Program, by Kirstin B. Blom and Ada S. Cornell.
37
See CRS Report R41962, The Social Security Retirement Age: In Brief, by Gary Sidor.
38
Payment may be made by check, money order, or credit card; alternatively, one may schedule a payment to be
automatically deducted from one’s bank account. Premium billing form and information may be found at
http://www.medicare.gov/forms-help-and-resources/mail-about-medicare/notice-of-medicare-premium-paymentdue.html.
39
Social Security Administration, Program Operations Manual, “HI 01001.225: When Premium Notices May Be Sent
to an Individual Other Than an Enrollee,” at https://secure.ssa.gov/apps10/poms.nsf/lnx/0601001225.
40
This grace period may be extended for up to an additional three months if the enrollee can establish that nonpayment
was due to circumstances beyond his or her control, such as being physically or mentally incapable of making premium
payments or due to an administrative error. There is no financial hardship exemption, although those with sufficiently
(continued...)
Congressional Research Service
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Potential Impact of No Social Security COLA on Medicare Part B Premiums in 2016
Social Security COLAs
After a person becomes eligible to receive Social Security benefits,41 his or her monthly benefit
amount is adjusted annually to compensate for increases in the prices of goods and services over
time.42 During the last quarter of each year, the Social Security Administration announces the
cost-of-living adjustment (COLA) payable in January of the following year. The amount of the
COLA is based on inflation as measured by the Consumer Price Index—Urban Wage Earners and
Clerical Workers (CPI-W). The CPI-W measures price changes in food, housing, gas, and other
goods and services. The Social Security COLA reflects the percentage change in the average CPIW from the third calendar quarter of the last year a COLA was determined to the third calendar
quarter of the current year.
If the CPI-W rises, Social Security benefits for the next year increase proportionately. If the
CPI-W falls, Social Security benefits stay the same—Social Security benefits do not decline if the
CPI-W falls from one year to the next. Automatic COLAs began in 1975 (P.L. 92-336).43
Since the Social Security COLA was linked to the CPI-W in 1975, the lowest implemented
COLA has been 1.3%, which occurred in both 1987 and 1999.44 No COLA was implemented in
2010 or 2011. For 2012 through 2015, retirees received COLAs of 3.6%, 1.7%, 1.5%, and 1.7%,
respectively.
However, the average CPI-W for July and August of 2015 is lower than that for the third quarter
average in 2014. The Social Security Administration therefore expects that there will be no
COLA in 2016.45 The final numbers used to determine the Social Security COLA for 2016 (i.e.,
the CPI-W for September 2015) are expected to be released on October 15, 2015.46
Medicare Part B Premiums Expected to Increase
in 2016
Because of projected Part B spending increases and the need to build up an adequate level of
contingency reserves, the Medicare Trustees estimate that monthly beneficiary premiums, under
normal circumstances, would need to increase from $104.90 in 2015 to about $120.70 in 2016, an
increase of $15.80 per month. (However, as described below, under the hold-harmless provision,
(...continued)
low income may qualify for premium assistance from a state Medicaid program.
41
For more information, see CRS Report 94-803, Social Security: Cost-of-Living Adjustments, by Gary Sidor.
42
See CRS Report R42035, Social Security Primer, by Dawn Nuschler.
43
Starting in 1975, COLAs have been applied annually, except when their effective date was switched from July to
January in conjunction with a delay in COLA application from July 1982 to January 1984.
44
The 1972 Social Security Amendments introduced the automatic COLA to Social Security payments. Initially, the
provision provided for an automatic COLA only if the increase in the Consumer Price Index—Urban Wage Earners
and Clerical Workers (CPI-W) was at least 3%. Although inflation regularly exceeded this level in the 1970s, inflation
began to wane in the 1980s. In 1986, Congress enacted legislation (P.L. 99-509) to eliminate the 3% trigger,
forestalling what would have been the first year with no COLA. For a history of Social Security COLA increases since
1975, see CRS Report 94-803, Social Security: Cost-of-Living Adjustments, by Gary Sidor.
45
Social Security Online, “COLA Estimates,” October 4, 2015, at http://www.ssa.gov/cgi-bin/bri.cgi.
46
Bureau of Labor Statistics, “Consumer Price Index,” at http://www.bls.gov/cpi/.
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Potential Impact of No Social Security COLA on Medicare Part B Premiums in 2016
premiums for some beneficiaries may be lower than this amount, while premiums for other
beneficiaries may be higher.)
Specifically, the Medicare Trustees estimate that 2015 Part B expenditures will be higher than
originally projected in 2014. Their 2015 report noted that “(l)egislation enacted at the end of 2014
and the beginning of 2015 raised Part B physician expenditures substantially compared to the law
in effect in the fall of 2014 when the 2015 financing was established.”47 Higher-than-expected
utilization of Part B services also contributed to this increase. While the Medicare Trustees
estimate that the financing established for 2015 should be adequate to cover expected
expenditures, they also note that the funding “would need to be increased in future years in order
to restore the financial status of the Part B account to a satisfactory level.”48
The higher-than-expected 2015 spending means that 1) future estimates will be calculated using a
higher baseline number and 2) 2015 expenditures are expected to exceed income for that year. As
a result, because premiums are based on 25% of expected per capita costs for the aged, 25% of
expected spending for 2016 will be out of a higher expected number. Additionally, the Medicare
Trustees are required to maintain an adequate reserve fund in the Part B account of the SMI Trust
Fund to cover potential variations in projected and actual costs. The trustees consider a ratio of
asset reserves to expected expenditures of between 15% and 20% to be adequate,49 and they have
aimed for reserves of 17% when determining Part B financing for the upcoming year.50
Unexpected expenditures in 2015 are expected to draw down on this reserve. By the end of the
year, reserves are projected to represent about 12% of expected 2016 costs. Financing for 2016
(premiums and general revenue) will need to be adjusted to build the reserves back up to 17% of
expected costs. Premiums may be adjusted to cover financing shortfalls in a prior year, (i.e., if
premiums were set too low in one year, the next year’s premiums may be adjusted to make up for
some of that shortfall to maintain an adequate reserve).
Future Part B spending is also expected to accelerate. Although Part B expenditure growth has
slowed in recent years and premiums have remained level for the past three, the Medicare
Trustees project faster benefit spending growth over the next five years (a 6.7% Part B average
annual growth rate, compared with a 5.3% growth rate over the last five years). The CMS
actuaries estimate that Medicare spending growth will increase due to “greater utilization of care,
and higher payment rates driven by improved economic conditions which increase growth in the
costs of input goods and services used to treat Medicare patients.”51
47
Medicare Trustees, 2015 Annual Report, p. 87, at https://www.cms.gov/Research-Statistics-Data-and-Systems/
Statistics-Trends-and-Reports/ReportsTrustFunds/Downloads/TR2015.pdf. The Medicare Access and CHIP
Reauthorization Act of 2015 (MACRA; P.L. 114-10) changed the methodology used to update Medicare payments to
physicians and made other Medicare payment adjustments. The Congressional Budget Office (CBO) estimated that
MACRA changes related to physician payment rates would increase direct federal spending by about $175 billion over
the period 2015 through 2025; this estimate includes increased spending in 2015 of $6.0 billion and in 2016 of $11.4
billion. See CBO, Cost Estimate and Supplemental Analyses for H.R. 2, the Medicare Access and CHIP
Reauthorization Act of 2015, March 25, 2015, at https://www.cbo.gov/publication/50053 and CRS Report R43962,
H.R. 2: The Medicare Access and CHIP Reauthorization Act of 2015, coordinated by Jim Hahn and Kirstin B. Blom.
48
Medicare Trustees, 2015 Annual Report, pp 96-97.
49
Ibid, p. 94.
50
CMS, “Medicare Program: Medicare Part B Monthly Actuarial Rates, Premium Rate, and Annual Deductible
Beginning January 1, 2015,” 79 Federal Register 61314, October 10, 2014, at http://www.gpo.gov/fdsys/pkg/FR-201410-10/pdf/2014-24248.pdf.
51
Sean P. Keehan et al., “National Health Expenditure Projections, 2014-24: Spending Growth Faster than Recent
Trends,” Health Affairs, 34, no. 8 (July 28, 2015).
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Potential Impact of No Social Security COLA on Medicare Part B Premiums in 2016
Protection of Social Security Benefits from Increases
in Medicare Part B Premiums
When the annual Social Security COLA is not sufficient to cover the standard Medicare Part B
premium increase, most beneficiaries are protected by the hold-harmless provision in the SSA.52
Specifically, if in a given year the increase in the standard Part B premium would cause a
beneficiary’s Social Security check to be less, in dollar terms, than it was the year before, then the
Part B premium is reduced to ensure that the amount of the individual’s Social Security check
does not decline.
The hold-harmless provision was originally created by the Deficit Reduction Act of 1984 (P.L.
98-369, §2302). It was extended by subsequent legislation and made permanent by the
Catastrophic Coverage Act of 1988 (P.L. 100-360, §211(b)).53 For most years prior to 1984,
increases in the Part B premium were tied to increases in the Social Security COLA.54 In the early
1980s, Congress regularly voted to set Part B premiums at a level to cover 25% of program costs,
in effect overriding the COLA limitation. The 25% provisions first became effective in 1984. The
hold-harmless provision was added that year to retain some limitation on the impact of increases
in Part B premiums on Social Security benefits.
To be held harmless in a given year, a Social Security beneficiary must have received Social
Security benefit checks in both December of the previous year and January of the current year. In
addition, Part B premiums must have been deducted from both those Social Security benefit
checks.55 The hold-harmless provision operates by comparing the net dollar amounts of the two
monthly benefit payments; if a beneficiary’s Social Security benefit net of Medicare premiums
for January of the current year is lower than it was in December of the previous year, then the
hold-harmless provision applies to that person.56 Premiums of those held harmless are then
reduced to an amount that would not cause their Social Security benefits to decline in the next
year. The premium paid by those held harmless is called the Variable Supplementary Medical
Insurance premium.57 Those not held harmless pay the standard premium as determined for that
year.
Typically, the hold-harmless provision has affected a relatively small number of beneficiaries and
has had minimal impact on Part B financing.58 In most years, this rule primarily protects those
52
SSA §1839(f). The hold-harmless provision was first implemented in January 1987.
This provision was not repealed when the Catastrophic Coverage Act of 1988 (P.L. 100-360) was repealed in 1989.
54
See CRS Report R40082, Medicare: Part B Premiums, by Patricia A. Davis.
55
Note that Social Security benefit checks reflect benefit entitlements for the previous month, whereas Part B
premiums are deducted in advance. For example, a November Social Security benefit check is not received until
December but has December’s Part B premium deducted from it.
56
This determination is made by the Social Security Administration. Benefits are determined prior to reductions due to
a government pension offset or a workers’ compensation payment. 42 C.F.R. §408.20(e)(3)(i). Retroactive adjustments
or payments and deductions on account of work are not to be taken into account in determining the monthly Social
Security benefits. SSA §1839(f). See Social Security Administration, “Retirement Planner: How We Deduct Earnings
from Benefits,” at https://www.socialsecurity.gov/planners/retire/whileworking2.html.
57
Social Security Administration, Program Operations Manual, “HI 01001.004: The Variable Supplementary Medical
Insurance Premium,” at https://secure.ssa.gov/poms.nsf/lnx/0601001004.
58
For an example of the Social Security benefit thresholds of those who qualified to be held harmless in 2001 through
2010, see Figure 2 of archived CRS Report RL33364, The Impact of Medicare Premiums on Social Security
Beneficiaries. For additional information, see Social Security Administration, Variable Supplementary Medical
Insurance Premiums, Actuarial Note No. 147, by Jacqueline A. Walsh and Burt M. Kestenbaum, March 2006, at
(continued...)
53
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Potential Impact of No Social Security COLA on Medicare Part B Premiums in 2016
with relatively low Social Security payments. (See Table 2.) However, in years in which there is
no Social Security COLA, such as in 2010 and 2011, a large number of beneficiaries may be
protected by this provision. (See “Application of the Hold-Harmless Provision in 2010 and
2011.”)
Table 2. Application of the Hold-Harmless Provision Under Hypothetical Scenarios
Social
Security
COLA in the
Next Year
Dollar
Amount of
Social
Security
Benefit
Increase
Assuming a
$16 Increase
in the
Medicare
Premium in
the Next
Year
Net Social
Security
Benefit
Increase or
Decrease
Application of
Hold-Harmless
Amount of
Medicare
Premium
Increase in
the Next
Year for That
Individual
$1,333
1.5%
$20.00
$16.00
$4.00
Not held harmless
$16.00
$650
1.5%
$9.75
$16.00
-$6.25
Held harmless for
partial amount
$9.75
$350
1.5%
$5.25
$16.00
-$10.75
Held harmless for
partial amount
$5.25
$1,333
(or any
amount)
0%
$0
$16.00
-$16.00
Held harmless for
entire increase
$0
Amount of
Monthly
Social
Security
Benefit in
Current Year
Source: Congressional Research Service (CRS) analysis.
Note: COLA = Cost-of-living adjustment.
Some Beneficiaries Are Not Protected by the Hold-Harmless
Provision
Not all beneficiaries are protected by the hold-harmless provision. For example, individuals who
pay the high-income premiums are explicitly excluded from protection under this provision. They
are required to pay the full amount of any increase in their Part B premiums.
Others are not protected by this provision because they do not meet the criteria of having their
Medicare premium deducted from their Social Security check from one year to the next. This
category includes the following:


Those whose Medicare premiums are paid by someone else. Lower-income
beneficiaries who receive premium assistance are not held harmless for premium
increases because Medicaid pays premiums on their behalf; however, the Medicaid
program generally pays the full amount of any increase in their Part B premiums.
Individuals whose relatives, employer, or other organization make premium
payments on their behalf also may not be held harmless.
Those who do not receive Social Security. This group includes those who have not yet
signed up for Social Security for various reasons, for example because they have not
reached full retirement age59 or are still working. It also includes disabled
beneficiaries whose Social Security Disability Insurance (SSDI) cash benefits have
(...continued)
http://www.ssa.gov/OACT/NOTES/pdf_notes/note147.pdf.
59
See CRS Report R41962, The Social Security Retirement Age: In Brief, by Gary Sidor.
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Potential Impact of No Social Security COLA on Medicare Part B Premiums in 2016

been discontinued because they have returned to work but who are still eligible for
Medicare.60 Additionally, those who receive benefits exclusively through a different
retirement plan are not held harmless.61 This category includes certain federal retirees
under the Civil Service Retirement System62 as well as certain state and local
government workers—such as teachers, law-enforcement personnel, and
firefighters—who have their own pension programs.63
Those who did not have Medicare premiums deducted from their Social Security
checks at the end of one year and the beginning of the next. This category includes
those who first become eligible to enroll in Social Security or Medicare during the
year the hold-harmless provision is in effect. It also includes those who had Medicare
premiums paid on their behalf one year, for example by Medicaid, but lost that
coverage during the next year. In addition, this group includes SSDI recipients who
will not become eligible for Medicare until the hold-harmless year because of the 24month waiting period.64
Some people protected by the hold-harmless provision may still see a decrease in their Social
Security checks due to an increase in Medicare Part D premiums. Part D premiums are not
covered by the hold-harmless provision, although beneficiaries with low-income subsidies would
not be affected.65
Additionally, those who pay the late-enrollment penalty are not fully protected from the holdharmless rule. The late-enrollment penalty is calculated from the standard premium established
for that year. In a year in which the hold-harmless provision is in effect, the late-enrollment
surcharges are calculated as a percentage of the premiums of those not held harmless. These
surcharges are considered “nonstandard” premiums and thus are not limited by the hold-harmless
provision.
60
See CRS Report R41934, Ticket to Work and Self-Sufficiency Program: Overview and Current Issues, by William R.
Morton; Social Security Administration, The Redbook, pp. 31-33, at http://www.ssa.gov/redbook/documents/
TheRedBook2015.pdf; and Social Security Administration, Disability Benefits For Wounded Warriors, pp. 13-14, at
http://www.ssa.gov/pubs/EN-05-10030.pdf. Disabled military personnel may be required to enroll in Part B to maintain
coverage under the Department of Defense health insurance, Tricare. Some persons with low incomes and limited
resources may be eligible for state assistance with these costs under various Medicare Savings Programs.
61
A person who is entitled to Social Security spousal benefits, based on a spouse’s work record instead of his or her
own work record, may or may not be covered by the hold-harmless provision. If the government pension offset (GPO)
were to reduce spousal benefits to zero, then the individual would not meet the hold-harmless provision’s requirement
of having benefit checks for December of the previous year and January of the current year. Therefore, this person
would not be held harmless. If the person were to receive a Social Security spousal benefit for a positive dollar amount,
then he or she would be covered by the hold-harmless provision. For more on the GPO, see CRS Report RL32453,
Social Security: The Government Pension Offset (GPO), by Gary Sidor.
62
Federal employees who exclusively worked under CSRS are not eligible for Social Security benefits based on their
own work record. See CRS Report 98-810, Federal Employees’ Retirement System: Benefits and Financing, by Katelin
P. Isaacs. This program uses the same measuring period and formula for determining its COLAs as Social Security. See
CRS Report 94-834, Cost-of-Living Adjustments for Federal Civil Service Annuities, by Katelin P. Isaacs.
63
Social Security Administration, “How State and Local Government Employees Are Covered by Social Security and
Medicare,” at http://www.ssa.gov/pubs/EN-05-10051.pdf, and Social Security Administration, “State and Local
Government Employers – Information,” at http://www.ssa.gov/slge/.
64
See CRS Report RS22195, Social Security Disability Insurance (SSDI) and Medicare: The 24-Month Waiting Period
for SSDI Beneficiaries Under Age 65, by Scott D. Szymendera.
65
However, CMS projects that, in general, Part D premiums will hold stable in 2016. CMS, “Medicare Prescription
Drug Premiums Projected to Remain Stable,” press release, July 29, 2015, at https://www.cms.gov/Newsroom/
MediaReleaseDatabase/Press-releases/2015-Press-releases-items/2015-07-29.html.
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Potential Impact of No Social Security COLA on Medicare Part B Premiums in 2016
What Happens in the Absence of a Social Security
COLA?
If there were to be a 0% Social Security COLA and an increase in Medicare Part B premiums in a
given year, as in 2010 and 2011, the majority of Medicare beneficiaries would be protected by the
hold-harmless provision. In this case, the premiums of those not held harmless would be higher
than they would have been had the hold-harmless provision not been in effect because the Part B
premium increase would be spread out among fewer enrollees.
Effect on Those Not Held Harmless
As previously described, the SSA requires the Secretary of Health and Human Services to adjust
Part B premiums as necessary so that the aggregate amount of beneficiaries’ contributions
provides 25% of estimated Part B program costs for the aged.66 General revenues, which cover
most of the remaining program costs (about 75%), are required to be set at an amount based on
the aggregate beneficiary premiums.67 The lower Part B premiums under the hold-harmless
provision also have the potential to cause lower general revenue transfers under the statutory
matching formula. Therefore, the hold-harmless provision has the potential to reduce SMI Trust
Fund income not only from premiums but also from general revenues unless beneficiaries are
charged different premiums.
The law does not specify how premiums and general revenues should be established in years in
which the hold-harmless provision applies to a large number of Medicare beneficiaries. Under
current law, the only way to collect the 25% of Part B costs that are required to be covered by
beneficiary premiums is to increase Part B premiums on beneficiaries who are not protected by
the hold-harmless provision.68 The beneficiaries who are not held harmless therefore shoulder the
entire beneficiary share of the increase in Part B costs. In other words, their premium increase can
be significantly greater than if there were no hold-harmless provision. As the Medicare Trustees
pointed out in their 2010 annual report, “(t)his approach to preventing exhaustion of the Part B
trust fund account is the only one available under current law,” despite the “serious equity issues”
this method raises.69
Application of the Hold-Harmless Provision in 2010 and 2011
Due to low inflation, no COLA adjustments were made to Social Security benefits in 2010 and
2011. However, Part B premiums increased, and the hold-harmless provision was broadly
applied.
In those years, most Medicare beneficiaries (about 73%) were protected by the hold-harmless
provision and continued to pay the 2009 standard monthly premium of $96.40 in both 2010 and
2011. Because Part B expenditures were still expected to increase—and beneficiary premiums are
66
SSA §1839(a).
SSA §1844.
68
The law does not specify that this method be used, but it also does not prohibit it.
69
Boards of Trustees, Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, 2010
Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplemental Medical
Insurance Trust Funds, August 5, 2010, pp. 97-98, at https://www.cms.gov/Research-Statistics-Data-and-Systems/
Statistics-Trends-and-Reports/ReportsTrustFunds/downloads/tr2010.pdf.
67
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Potential Impact of No Social Security COLA on Medicare Part B Premiums in 2016
required to cover 25% of those costs—the premiums for those not held harmless (27% of
beneficiaries) were higher than they would have been had the rest of the beneficiaries not been
held harmless. The standard monthly premiums paid by those not held harmless were $110.50 in
2010 and $115.40 in 2011.70 In 2011, of the 27% who were not eligible to be held harmless, about
3% were new enrollees, about 5% were high-income beneficiaries, about 17% had their
premiums paid for by Medicaid, and the remaining 2% did not have their premiums withheld
from Social Security benefit payments.71 Premiums paid by enrollees in each of these years are
shown in Table 3.
In calculating the actuarial rates in 2010 and 2011,72 the amount of the lost premium income due
to the application of the hold-harmless provision was included in the determination of the
monthly actuarial rate for the aged (the rate used to determine both premiums and general
revenue matching). Specifically, the percentage of expected per capita expenditures for those
years was calculated first. Then, a higher contingency margin than normal was added to this
amount to offset the lost premium income from those held harmless. (See “Calculation of the
2015 Premium” for a description of contingency margins.) In 2010 and 2011, the contingency
margins were $34.32 and $41.22, respectively,73 which were included in the actuarial rates of the
aged—$221.00 in 2010 and $230.70 in 2011. Standard premiums were then calculated by
determining one-half of the actuarial rate for the aged, which was $110.50 in 2010 and $115.40 in
2011. By comparison, the contingency margin in 2012, when the hold-harmless provision was no
longer in effect, was $9.64,74 the actuarial rate was $199.80, and the standard monthly premium
was $99.90. If the actuarial rates had not been increased in 2010 and 2011 to account for the lost
premium incomes, funding from premiums and general revenues would have been insufficient to
cover expenditures in those years.
In 2012 and 2013, Social Security beneficiaries received a 3.6% and a 1.7% COLA, respectively,
which more than covered the Part B premium increase in those years; therefore, the holdharmless provision was not applicable for most beneficiaries. Similarly, in 2014 and 2015, with a
Social Security COLA increase of 1.5% and 1.7%, respectively, and no increase in Part B
premiums, the hold-harmless provision has not been applicable.75
70
Most new enrollees in 2010 were eligible to be held harmless in the second year of no COLA (i.e., 2011); these
individuals continued to pay the 2010 standard premium of $110.50 in 2011.
71
CMS, “Medicare Program: Medicare Part B Monthly Actuarial Rates, Premium Rate, and Annual Deductible
Beginning January 1, 2010,” 74 Federal Register 54571, October 22, 2009, at http://www.gpo.gov/fdsys/pkg/FR-200910-22/pdf/E9-25370.pdf, and “Medicare Program: Medicare Part B Monthly Actuarial Rates, Premium Rate, and
Annual Deductible Beginning January 1, 2011,” 75 Federal Register 68790, November 9, 2010, at
http://www.gpo.gov/fdsys/pkg/FR-2010-11-09/pdf/2010-28248.pdf.
72
Ibid.
73
These contingency margins were offset to a small degree by interest earnings of $3.16 in 2010 and $1.76 in 2011.
74
This amount was offset by $2.64 in interest earnings.
75
Social Security Administration, “Cost-of-Living Adjustment (COLA) Information for 2015,” at
http://www.socialsecurity.gov/cola/; and Social Security Administration Fact Sheet, “2015 Social Security Changes,” at
http://www.ssa.gov/news/press/factsheets/colafacts2015.html.
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Potential Impact of No Social Security COLA on Medicare Part B Premiums in 2016
Table 3. Monthly Medicare Part B Premiums in Years 2009-2012
(with hold-harmless provision in effect in 2010 and 2011)
2009 Monthly
Premiums
2010 Monthly
Premiums for
Those Not Held
Harmless
(those held
harmless paid
2009 amounts)
2011 Monthly
Premiums for
Those Not Held
Harmless
(those held
harmless paid
2009 or 2010a
amounts)
2012 Monthly
Premiums
(hold-harmless
provision not in
effect)
$96.40
$110.50
$115.40
$99.90
Level 1 (35%)
134.90
154.70b
161.50b
139.90
Level 2 (50%)
192.70
221.00
230.70
199.80
Level 3 (65%)
250.50
287.30
299.90
259.70
Level 4 (80%)
308.30
353.60
369.10
319.70
Levels of Premium
Adjustment and
Percentage of Costs
Covered by
Premiums
Standard (25%)
Source: Boards of Trustees, Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust
Funds, 2015 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplemental
Medical Insurance Trust Funds, July 22, 2015, Tables V.E2 and V.E3, at https://www.cms.gov/Research-StatisticsData-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/Downloads/TR2015.pdf. (Hereinafter
Medicare Trustees, 2015 Annual Report.)
a. New enrollees in 2010 who were not held harmless in that year could have been held harmless in 2011 if
they met the conditions. Those individuals would then have paid the 2010 premium ($110.50) in 2011.
b. Beneficiaries who paid the high-income premiums were not protected by the hold-harmless provision and
paid the 2010 and 2011 rates (levels 1-4) shown in this table.
Potential Application of the Hold-Harmless
Provision in 2016
Because of projected Part B spending increases and the need to build up an adequate level of
contingency reserves,76 the Medicare Trustees estimate that beneficiary premiums will need to
increase to about $120.70 per month in 2016. But, as previously noted, the trustees also expect
that there will be no Social Security COLA in 2016 and that the hold-harmless provision will
apply to most beneficiaries. Because most beneficiaries would be held harmless in this situation
and their premiums would remain at the 2015 amount ($104.90 per month), the premiums of the
30% of beneficiaries not held harmless would need to cover all of the expected increased costs so
that 25% of Part B costs would still be covered by beneficiary premiums. In other words, if the
hold-harmless provision were not in effect in 2016, everyone who pays the standard premium
would pay about $120.70 per month; however, if it goes into effect, those not held harmless are
expected to pay standard premiums of close to $160 per month ($159.30), while those who are
held harmless would continue to pay $104.90 per month.
76
As previously described, the Medicare Trustees try to maintain an adequate reserve fund (about 17% of expected
costs for the year) in the SMI Trust Fund to cover potential variations in projected and actual costs. Unexpected
expenditures in 2015 are expected to draw down on this reserve so that by the end of the year, reserves are projected to
represent about 12% of expected 2016 costs. Financing for 2016 (premiums and general revenue) will need to be
adjusted to build the reserves back up to 17% of expected costs.
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Potential Impact of No Social Security COLA on Medicare Part B Premiums in 2016
The Medicare Trustees estimate that, in 2017, the hold-harmless provision will no longer be in
effect and the standard premium will decrease to about $120.70. (See Figure A-1.)
Impact on Beneficiaries
Most Beneficiaries Would Be Held Harmless
About 70% of all Part B enrollees are expected to be held harmless for the increase in Part B
premiums in 2016. Because a large proportion of the disabled qualify for premium assistance
through Medicaid, a smaller percentage, about 55%, of the disabled would be held harmless
compared to about 75% of the aged.77 Those held harmless would continue to pay the same Part
B premiums in 2016 as they did in 2015 ($104.90), and the amount of their Social Security
checks would not change (assuming no other changes to their circumstances).
Some Beneficiaries Would Not Be Held Harmless
Not all beneficiaries would be protected by the hold-harmless provision. (See “Some
Beneficiaries Are Not Protected by the Hold-Harmless Provision.”) An estimated 30% of Part B
enrollees would not be held harmless if there were no Social Security COLA in 2016. As
previously noted, persons not eligible to be held harmless include higher-income beneficiaries
who pay income-related Part B premiums, lower-income beneficiaries whose premiums are paid
by Medicaid, new enrollees to either Medicare Part B or Social Security in 2016, and persons
whose premiums are not deducted from Social Security benefits. The potential increases in
premiums for those not held harmless in 2016 range from $54.40 per month ($652.80 annually)
for those who pay the standard premium to $174.10 per month ($2,089.20 annually) for those
who are at the highest income tier. (See Table 4.)
In 2016, about 6% of Part B enrollees are expected to be subject to income-related premiums and
therefore would not be held harmless. (See Table 5.) Individuals paying the high-income
premium could see premium increases of between $76.10 per month (for those in the lowest highincome tier) and $174.10 per month (for those in the highest income tier). High-income enrollees’
total 2016 premiums could therefore range from $223.00 per month ($2,676 annually) to $509.80
per month ($6,117.60 annually). As each member of a couple whose income exceeds the highincome thresholds pays the high-income premium amount, high-income couples could see annual
combined premiums of between $5,352 and $12,235.20 in 2016.
77
Estimates provided to CRS by CMS, September 2015.
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Potential Impact of No Social Security COLA on Medicare Part B Premiums in 2016
Table 4. Monthly Medicare Part B Premiums for 2015 and Projected 2016 Premiums
If HoldHarmless
Rule Is Not in
Effect in 2016
If Hold-Harmless Rule Is in Effect in
2016
2015 Monthly
Premium
(actual)
2016 Monthly
Premium
(estimate)
2016 Monthly
Premium
(estimate) for
Those Held
Harmless
(about 70% of
beneficiaries)
2016 Monthly
Premium
(estimate) for
Those Not Held
Harmless
(about 30% of
beneficiaries)
Levels of Premium
Adjustment and
Percentage of
Costs Covered by
Premiums
Beneficiaries
Who File an
Individual
Tax Return
with Income
Beneficiaries
Who File a
Joint Tax
Return with
Income
Standard (25%)
Less than or
equal to
$85,000
Less than or
equal to
$170,000
$104.90
$120.70
$104.90
$159.30
Level 1 (35%)
Greater than
$85,000 and
less than or
equal to
$107,000
Greater than
$170,000 and
less than or
equal to
$214,000
$146.90
$169.00
NA
$223.00
Level 2 (50%)
Greater than
$107,000 and
less than or
equal to
$160,000
Greater than
$214,000 and
less than or
equal to
$320,000
$209.80
$241.40
NA
$318.60
Level 3 (65%)
Greater than
$160,000 and
less than or
equal to
$214,000
Greater than
$320,000 and
less than or
equal to
$428,000
$272.70
$313.80
NA
$414.20
Level 4 (80%)
Greater than
$214,000
Greater than
$428,000
$335.70
$386.20
NA
$509.80
Sources: CMS, “Medicare Program: Medicare Part B Monthly Actuarial Rates, Premium Rate, and Annual
Deductible Beginning January 1, 2015,” 79 Federal Register 61314, October 10, 2014, at http://www.gpo.gov/fdsys/
pkg/FR-2014-10-10/pdf/2014-24248.pdf; Medicare Trustees, 2015 Annual Report, Tables V.E2 and V.E3; and CRS
analysis.
Note: NA = not applicable.
Approximately 19% of Medicare Part B enrollees have their premiums paid by Medicaid and
therefore would not be held harmless. Additionally, about 5% of Part B beneficiaries are expected
to be receiving Medicare or Social Security for the first time in a given month during 2016 and
would not be protected by the hold-harmless provision during that year.78 Approximately 3% of
beneficiaries (or someone paying on behalf of these beneficiaries) pay their premiums directly to
CMS and therefore also would not be held harmless.
78
This category includes SSDI beneficiaries who are receiving SSDI benefits but are still in the 24-month waiting
period for Medicare.
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Potential Impact of No Social Security COLA on Medicare Part B Premiums in 2016
Table 5. Estimated Number of Beneficiaries Impacted by the Hold-Harmless
Provision in 2016
Number of
Beneficiaries
(in millions)
Percentage of
Medicare Part B
Enrollees
36.7
70
15.5
30
Dual Eligibles
10.0
19
High-Income Enrollees
3.1
6
Direct Remittanceb
1.6
3
New Enrollees
2.6
5
0.75
1.4
Protected by the Hold-Harmless Provision
Excluded from the Hold-Harmless
Provisiona
Pay Late-Enrollment Penaltiesc
a.
b.
c.
Source: Estimates provided to CRS by CMS, September 2015.
There is overlap among subcategories. For example, one can be both a new and a high-income enrollee.
Therefore, the numbers and percentages in the subcategories add to more than the total number and
percentage not held harmless.
Those whose premiums are not deducted from Social Security or Railroad Retirement benefits or not paid
by Medicaid.
Late-enrollment penalty numbers are from 2014. More recent statistics were not available at the time of
this report.
In addition, the late-enrollment penalty is determined as a percentage of the standard premium.
Therefore, even if protected by the hold-harmless provision in regard to their standard premiums,
those who pay the late-enrollment penalty could see a large increase in their penalty payments in
2016. For example, an individual with a 30% penalty currently pays an additional $31.50 per
month on top of the standard premium of $104.90. In 2016, a 30% penalty could increase to close
to $47.80. This amount would be in addition to whatever premium that person pays in 2016
($104.90 for those held harmless and an estimated $159.30 for those not held harmless).
Impact on Medicare and Medicaid Financing
Medicare Part B (SMI) Trust Fund Impact
The Medicare Trustees estimate that the Part B Trust Fund account will require about $306.7
billion in income from premium collections and general revenue contributions in 2016 to cover
expenditures and establish a sufficient contingency reserve.79 As previously described, in the
absence of a Social Security COLA, Part B premiums must be increased substantially on those
who are not held harmless to prevent potential SMI Trust Fund exhaustion (see “Effect on Those
Not Held Harmless,” above). In their 2015 report, the Medicare Trustees state that “[u]nder
current law, Part B premiums for other beneficiaries must be raised substantially to offset
79
This amount of estimated revenue would exceed estimated expenditures of $298.0 billion. This would increase asset
reserves by about $8.7 billion, so that assets in the Part B account of the SMI trust fund at the end of the year would
increase to $77.0 billion.
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Potential Impact of No Social Security COLA on Medicare Part B Premiums in 2016
premiums foregone due to the hold-harmless provision, to prevent asset exhaustion, and to
maintain a contingency reserve that accommodates normal financial variation.”80
Were Congress to enact legislation to reduce the premiums of those not held harmless in a given
year, additional general revenues, or another source of funds, would be needed to ensure that the
SMI Trust Fund had sufficient funds to cover Part B expenses during the year.
Medicaid Impact
Low-income beneficiaries who receive premium subsidies make up the substantial majority of
those who are not held harmless. The federal-state Medicaid program pays the entire amount of
these beneficiaries’ Part B premiums, including any increase. As a result, Medicaid costs increase
substantially in the absence of a Social Security COLA, with the burden falling on states as well
as the Treasury (as a result of the federal match). One analysis suggests that Medicaid spending
would increase by about $5.6 billion in 2016 and that the state share of this increase would be
$2.3 billion.81 By comparison, if all beneficiaries paid the same expected $120.70 per month
premium, Medicaid spending would increase by approximately $1.6 billion, with the state share
of this about $678 million.
Additionally, as the allocation for the (100% federally funded) Qualifying Individual program is
limited each year, higher premiums could mean that fewer Medicare beneficiaries with incomes
between 120% and 135% of FPL may qualify for premium assistance through this program. As of
April 2015, the QI program covered the Part B premiums for about 500,000 beneficiaries.82
Expected Increase in Deductibles
Most services covered by Medicare Part B are subject to an annual deductible and coinsurance.83
Prior to the MMA, the Part B deductible was set in statute. The MMA specified a $110 deductible
in 2005 and required that each year afterward the annual increase in the deductible be increased
with the increase in the Part B actuarial rate of the aged.84 In this way, the growth in the
deductible is tied to the growth in per capita Part B expenditures. (The actuarial rate of the aged is
the same measure used to determine beneficiary premiums.)
In 2015, the Part B deductible is $147. However, due to the widespread application of the holdharmless provision, the Medicare Trustees estimate that the actuarial rate will increase by close to
52% from 2015 to 2016. They therefore estimate that the annual Part B deductible will increase
by about 52%, from the 2015 amount of $147 to $223 in 2016.85 In 2017, the trustees estimate
80
Medicare Trustees, 2015 Annual Report, p. 32, at https://www.cms.gov/Research-Statistics-Data-and-Systems/
Statistics-Trends-and-Reports/ReportsTrustFunds/Downloads/TR2015.pdf.
81
Tomsic, Trinity, Federal Funds Information for States, “Medicare Part B Premiums for Dual Eligibles Projected to
Increase 52% in CY 2016,” Issue Brief 15-30, September 28, 2015. This analysis also provides a state-by-state
breakdown of expected Part B premium cost related increases.
82
Data provided to CRS by CMS, August 2015. In 2015, the Qualifying Individual program was allocated funding of
about $1.1 billion. MACRA provides $980 million for the program for 2016.
83
Some services are not subject to the deductible or coinsurance; these include clinical laboratory tests, home health
agency services, and most preventive care services.
84
SSA §1833(b).
85
By comparison, when the hold-harmless provision was in effect in 2010 and 2011, deductibles were increased to
$155 in 2010 from the 2009 amount of $135, and they increased again to $162 in 2011. In 2012, deductibles decreased
to $140, and from 2013 through 2015 they have been held flat at $147 each year.
Congressional Research Service
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Potential Impact of No Social Security COLA on Medicare Part B Premiums in 2016
that the hold-harmless provision will no longer be in effect and that deductibles will decline to
$169.
The increased deductible would affect most beneficiaries, including those held harmless from the
premium increases. While some Medigap and retiree plans cover beneficiary deductibles, an
increase in the deductible amount also could affect the premiums that beneficiaries pay for this
supplemental insurance.
Legislative Activity
The SSA does not specify how Medicare premiums are to be set in years in which there is an
increase in Medicare Part B premiums but no Social Security COLA. Although the hold-harmless
provision protects beneficiaries who receive Social Security benefits against increases in their
Medicare premiums, aside from those paying the high-income premiums, the law is silent with
respect to those who would not be held harmless under these circumstances. However, given that
the SSA also requires that income from beneficiary premiums be set at 25% of expected per
capita costs and that income to the SMI Trust Fund from general revenues be based on the
aggregate dollar amount of beneficiary premiums, CMS has determined that substantially
increasing the premiums on those not held harmless is the only way to make up for the revenue
shortfalls caused by the hold-harmless provision. As the Medicare Trustees noted in their 2009
report, “(t)his method of addressing the revenue shortfalls caused by the hold-harmless provision
is the only one available under current law. From a policy perspective, other approaches might be
preferable but would require legislation to implement.”86
The interaction between Social Security benefits and Medicare premiums is complex and raises a
number of issues. These issues include the impact of having no Social Security COLA on seniors
who are projected to face higher deductibles; the impact of the hold-harmless provision on the
Part B premiums paid by beneficiaries who are not held harmless; and other concerns.
Numerous bills introduced in the 111th Congress would have addressed one or more of these
issues by making changes to Social Security and/or Medicare.87 Some of these bills were directly
related to the hold-harmless provision in effect in 2010 and 2011, while others focused on yearto-year increases in Social Security benefits.
For example, a number of bills introduced in the 111th Congress would have provided a COLA for
Social Security benefits in either 2010 or 2011. A positive COLA increase would have resulted in
fewer beneficiaries being held harmless from Medicare Part B premium increases in those years.
Several other bills would have provided one-time additional Social Security payments.88 Most of
those bills did not directly address the issue of Part B premiums but rather focused on payments
to Social Security beneficiaries, veterans, and retired railroad workers.
More recently, in the 114th Congress, bills have been introduced that would create a new inflation
index, a Consumer Price Index for the Elderly (CPI-E). This proposed index is intended to better
86
Boards of Trustees, Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, 2009
Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplemental Medical
Insurance Trust Funds, May 12, 2009, p. 25, footnote 10, at https://www.cms.gov/Research-Statistics-Data-andSystems/Statistics-Trends-and-Reports/ReportsTrustFunds/Downloads/TR2009.pdf.
87
A summary of these bills may be found in archived report CRS Report R40561, Interactions Between the Social
Security COLA and Medicare Part B Premiums, by Jim Hahn.
88
See archived CRS Report R41488, One-time Payment in Lieu of a Social Security COLA, by Sharmila Choudhury,
Dawn Nuschler, and Scott D. Szymendera.
Congressional Research Service
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Potential Impact of No Social Security COLA on Medicare Part B Premiums in 2016
reflect the prices of goods and services used by seniors, such as costs associated with housing and
healthcare. H.R. 3351, the CPI-E Act, would index the Social Security COLA to this new
measure.
Several bills considered during the 111th Congress contained provisions to specifically address the
impact of the hold-harmless provision on Medicare premiums as a result of having no COLA in
Social Security benefits. For example, H.R. 3631, the Medicare Premium Fairness Act, would
have frozen the 2010 monthly Medicare Part B premium at the 2009 level for all Part B
enrollees.89 Another bill, H.R. 1832, the Medicare Prescription Drug Affordability Act of 2009,
would have, among other things, expanded the hold-harmless provision to premiums paid for
Medicare Part D.
In addressing the potential application of the hold-harmless provision in 2016, the 114th Congress
may consider reducing the expected premium levels for some or all of those not be protected by
the hold-harmless provision and/or reducing the deductible. For example, S. 2148, the Protecting
Medicare Beneficiaries Act of 2015, and H.R. 3696, the Medicare Premium Fairness Act, both
introduced on October 7, 2015, would keep the 2016 Part B premiums at the 2015 level for all
beneficiaries, including those with high incomes. Late-enrollment surcharges would also be based
on the 2015 standard premium, and the deductible would remain at the 2015 rate. The loss of
income from holding premiums flat in 2016 would be offset by increased general revenue
contributions.
89
H.R. 3631 was the only related bill that was voted on. It passed the House on September 24, 2009, by a vote of 40618 but was not voted on by the Senate.
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Potential Impact of No Social Security COLA on Medicare Part B Premiums in 2016
Appendix A. Medicare Part B Premium Trends
Figure A-1. Actual and Projected Medicare Part B Premium Growth
180
Historical
160
About 70% of enrollees expected to be held
harmless in 2016 and pay the 2015 premium amount
Projected
140
Most enrollees were held harmless in 2010 and
2011 and paid the 2009 premium amount
Monthly Premium ($)
120
100
Transition from fixed dollar amount under
OBRA 90 (1991-1995) to 25% of costs
under OBRA 93 and BBA 97 (1996 on)
80
60
$4 catastrophic coverage premium added by Catastrophic
Coverage Act of 1988, repealed the next year
40
20
0
Sources: Congressional Research Service figure, based on Boards of Trustees, Federal Hospital Insurance and
Federal Supplementary Medical Insurance Trust Funds, 2015 Annual Report of the Boards of Trustees of the Federal
Hospital Insurance and Federal Supplemental Medical Insurance Trust Funds, July 22, 2015, Tables V.E2, at
https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/
Downloads/TR2015.pdf.
Notes: Premium amounts in 2010, 2011, and 2016 (estimate) apply to those not held harmless.
OBRA 90 = Omnibus Budget Reconciliation Act of 1990 (P.L. 101-508); OBRA 93 = Omnibus Budget
Reconciliation Act of 1993 (P.L. 103-66); BBA 97 = Balanced Budget Act of 1997 (P.L. 105-33).
Author Contact Information
Patricia A. Davis
Specialist in Health Care Financing
[email protected], 7-7362
Congressional Research Service
22
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