Medicare Part B Premium Protection

My client will be 65 this fall and has begun the Medicare application process. We were planning to delay her Social Security filing until age 70 to maximize her benefits. She contacted me because she heard that Medicare Part B premiums will be more expensive if she doesn’t file for Social Security sooner. Are Medicare Part B premiums affected by a person’s Social Security filing?

ERISA consultants at the Retirement Learning Center Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, Social Security and Medicare. We bring Case of the Week to you to highlight the most relevant topics affecting your business.

A recent call with a financial advisor from California is representative of a common inquiry related to Medicare Part B premiums.

Highlights of Discussion

Potentially, yes. Medicare Part B premiums may be affected by Social Security filing status. Medicare Part B premiums, generally, increase each year. However, if an individual’s Medicare Part B premiums are “protected,” then premium increases may be less than if the premiums were not protected. Medicare Part B premiums are protected if the individual is receiving Social Security benefits. If the Medicare Part B premiums are protected then Part B premium increases may be no more than the Social Security cost of living adjustment (COLA) for the year.

As background, most Medicare eligible people pay the standard premium amount. The standard Part B premium amount for 2018 is $134. For some, it may be higher, depending on the individual’s income. If a person’s modified adjusted gross income (MAGI) is above a certain amount, then he or she will pay an “Income Related Monthly Adjustment Amount” (IRMAA). Refer to Part B costs on Medicare’s Web site for more details. Medicare uses the MAGI reported on your IRS tax return from two years ago (2016 return for 2018).

However, many people (70 percent) who receive Social Security benefits pay less than the standard Medicare Part B premium ($130 on average) as a result of the law’s “hold harmless” rule that protects the premium from rising more than the Social Security COLA for the year. To qualify for reduced premiums under the hold harmless provision, individuals must receive Social Security benefits, cannot be subject to premiums based on IRMAA, they must have had their Part B premiums paid out of those Social Security benefits for at least two months in the previous year; and they do not receive a COLA large enough to cover the increased premium.[1]

Example

Jill pays the standard amount ($134 per month) in Medicare Part B premiums and receives Social Security benefits from which the premiums are deducted. Her Medicare Part B premium is protected. In 2019, Jill’s Social Security COLA increase is $15 and the Medicare Part B premium increases $25. Because of the protected status, Jill’s Part B premium will increase by only $15. Her Part B increase is limited to no more than the Social Security COLA increase of $15. If Jill had not been receiving Social Security benefits, her Part B premium would have increased by $25.

Conclusion

Protecting Medicare Part B premiums is one consideration among many that individuals should weigh when determining when to begin Social Security benefits. It may make sense to file for Social Security benefits at 65 to protect the individual from Medicare Part B premium increases. Keep in mind that even if the premium is protected, it can increase, but the increase cannot be greater than the annual Social Security COLA.

[1]medicareinteractive.org, Increases in Part B premiums and the hold harmless provision