Modest COLA Hike Means Higher Medicare Part B Premiums

Christine Benz: Hi, I'm Christine Benz for Morningstar.com. So, Medicare enrollees may see a big increase in their Medicare Part B premiums. Joining me to discuss this topic is Mark Miller, he's a Morningstar contributor.

Mark, thank you so much for being here.

Mark Miller: Good to be here Christine.

Benz: Let's start by talking about the Social Security COLA adjustment, the cost of living increase that Social Security recipients receive. They are getting a very modest increase for 2017. Let's talk about that.

Miller: So, every year there is cost of living adjustment that's made. It's tied to the consumer price index, and it was just announced recently that the increase for next year is going to be three tenths of one percentage point. So, it's quite small; last year it was zero. There are some issues running around in there about the way that inflation is measured in the general working population versus seniors--the big one really is healthcare costs are, inflation is higher. And seniors are disproportionately affected by healthcare costs. So, that's where this kind of tension is set up between the Social Security COLA, and this being reflected in this Medicare issue.

Benz: One thing before we go over to talk about how this is affecting Medicare: There is that experimental CPI-E, which is meant to measure the consumption basket for older folks. What's the status of that, of incorporating that into the Social Security inflation adjustment?

Miller: It tends to run a little higher than the CPI-W.

Benz: Because of the healthcare expenses.

Miller: Yeah, it's not dramatically higher, and it actually bounces around from year to year. You can't say that consistently every year it dramatically outpaces the current index. But I think that whenever we get around to discussing Social Security reform, and I hope that's soon, this should be one of the issues that we talk about is how do we get a better handle on the inflation issue and how we adjust benefits for it. I don't know if anybody's got the perfect answer for it, but certainly the CPI-E is one thing that's been pointed to as a way to go.

Benz: So, let's move on and talk about how this COLA adjustment, modest as it is, affects the Medicare Part B premium.

Miller: So, under federal law we have something called the Hold Harmless provision, that says that any current Social Security recipient who is also in Medicare that--you can't raise the Part B premium any more than the dollar amount of a Social Security increase. Now the Medicare trustees already said earlier in the year they projected a pretty stiff increase in the Medicare Part B premium from a roughly $120 now to $149. But, because of what I was just saying, that 70% of Medicare enrollees are covered by the Hold Harmless...

Benz: They are not affected.

Miller: So, if you have that $5 monthly increase in your benefit, that means your Part B premium can only go up $5. The issue that comes up is for the other 30% who are not Hold Harmless. That can include people who are on Medicare, but haven't filed for Social Security yet. People who we've been telling for years here …

Benz: To delay, delay …

Miller: Delay your filing. Well, you should, but you are not now protected against that increase. Or let's say many state and federal government employees who are not in the Social Security system, but do use Medicare, again not protected. So, there is a bunch of folks who are not, roughly 30% of the Medicare population, that are not protected by this Hold Harmless provision. So, they are at risk of big increase. This is going to play out over the course of the fall. Number one, we haven't got the final number yet from Medicare on what the Part B number will be. They are projected at $149 it could come in a little lower. Also, last year Congress stepped in at the eleventh hour and passed something that ameliorated some of that increase. I don't remember the specific number but it was brought down quite a bit.

Benz: It helped.

Miller: Yeah. It was still an increase but not as big as it could have been. We might not know until the very end of the year exactly how these 30% of Medicare beneficiaries might be impacted by the combination of these three things--the COLA, the Part B premium, and what might be done to soften the blow.

Benz: So, wait and see I guess. If you are a senior potentially affected by this increase I guess it may be a good reason to give your congressperson a call about this.

Miller: But also the good news is if you are in that 70%...

Benz: You are OK.

Miller: You're OK. What's going to happen is you are not going to--you are basically going to get no increase in your Social Security, that's the bad news. You are not even going to get the three tenths of one percent, because this is going to go to your Part B premium but at least you are not going to be saddled with a gigantic increase in your Part B premium next year.

Benz: OK, Mark, important news to keep an eye on. Thank you so much for being here today to discuss it with us.

Miller: Thank you.

Benz: Thanks for watching. I'm Christine Benz for Morningstar.com.