What regulates the amount of the Part B premium?

The standard Medicare Part B premium is decided by a formula included in the 1997 Balanced Budget Act, which set the premium at 25 percent of overall program expenditures. The outstanding 75 percent of program costs are funded out of general revenues. The Medicare Modernization Act of 2003 (MMA) required higher-income beneficiaries to pay a greater percentage of program expenses, resulting in numerous tiers of premiums established on income.

How the Social Security COLA is computed

SSA begins with the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), an official measure of the monthly price adjustment in a basket of goods and services. The CPI-W is tracked by the U.S. Bureau of Labor Statistics (BLS). SSA then computes the COLA by comparing the average of the CPI-W for July, August, and September of the prior year with the average for the same three-month period in the current year. The percentage change is the COLA for the next year. Social Security will announce the next COLA in October 2020.

The Medicare Hold Harmless Provision

The Medicare hold harmless provision bans Medicare Part B premiums from decreasing the amount of a person’s Social Security payments year over year. This restricts the rise in Medicare Part B premiums paid by Social Security beneficiaries each year to no more than the cost of living increase supplied by Social Security. The hold-harmless provision, therefore, restricts the financial burden certain Social Security recipients may feel should Medicare costs increase. To be eligible for decreased payments under the hold harmless provision, individuals have to receive Social Security benefits. They must have had their Part B premiums paid out of those benefits for at least two months in the preceding year. Individuals who make payments for Part B insurance directly to Medicare, and individuals who have premiums funded by Medicaid do not qualify and, therefore, may be subject to larger premiums.

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