For only the second time in 35 years and the second year in a row, Social Security recipients will not receive a cost-of-living adjustment (COLA) next year. The lack of increase may affect 50 million recipients who rely on Social Security as their primary source of income.
“With no Social Security COLA,” notes Alan Weinstock, an insurance broker at MedicareSupplementPlans.com, “there may be financial implications for Social Security recipients who are covered under Medicare Part B.”
Impact of Social Security on Medicare Part B
Normally, the Social Security COLA has no bearing on the premium paid for Medicare Part B. Beneficiary premiums for Medicare Part B are set each year to cover 25 percent of Medicare Part B spending.
The Social Security COLA is based on the change in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) between the third quarter (July-September) of the current year and the third quarter of the most recent year a cost-of-living adjustment was determined. The most recent Social Security COLA was given in 2009 when recipients received a 5.8 percent increase.
The lack of COLA in 2010 was due to the change in the CPI-W between the third quarters of 2008 and 2009. There was a drop in prices at the end of 2008. The lack of COLA for 2011 is based on the third quarters of 2008 and 2010, where there has been minimal growth.
Generally, the COLA provided each year covers any cost increase in Medicare Part B premiums. In those years when the COLA is insufficient to cover the Medicare Part B increase, a “hold-harmless” provision prohibits an increase in Medicare Part B premiums. So with no Social Security COLA in 2010 and 2011, most Medicare beneficiaries will not see an increase in their Medicare Part B premiums.
Not all Medicare Beneficiaries Protected by “Hold-Harmless” Provision
While the majority of Medicare beneficiaries (73%) are protected by this provision in 2011, Medicare Part B premium increases will be paid by or on behalf of Medicare beneficiaries who:
1. Don’t have Medicare Part B premium deducted from their monthly Social Security payments (19%)
2. Have a modified adjusted gross income greater than $85,000 for individuals or $170,000 for couples who are required to pay an income-related surcharge (5%)
3. Are new enrollees and whose Social Security payments could not decline because they did not receive Social Security payments and/or weren’t covered by Medicare Part B (3%)
Cost of Medicare Part B Premium Increase
For Medicare beneficiaries not covered by the hold-harmless provision, Medicare Part B premiums will increase by $4.90 per month between 2010 and 2011. That is an increase from $100.50 to $115.40 per month or 4%. This Medicare Part B premium increase is high because it is shared by a small percentage of Medicare beneficiaries.
The majority of Medicare beneficiaries who are protected by the hold-harmless provision will continue to pay Medicare Part B premiums of either $96.40 per month if they were enrolled in Medicare in 2009 or $110.50 if they were new recipients of Social Security and Medicare in 2010.
The hold-harmless provision does not apply to Medicare Part D premiums. Medicare beneficiaries receiving a zero percent cost-of-living increase who are enrolled in Medicare Part D plans could see a reduction in their Social Security payments in 2011 if their monthly Medicare Part D plan premium increases.
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