The Hold Harmless Act

Through the “Medicare Catastrophic Coverage Act of 1988” Congress created a provision, the Hold Harmless Act, that protects those receiving Social Security benefits while enrolled into Medicare from ever experiencing a reduction in Social Security benefits from “too high” of Medicare Part B premium increases in a given year.

The goal of this Act was to ensure that those collecting Social Security would not see their benefit being consumed by Medicare Part B premiums as they aged.

An example of how the Hold Harmless Act benefits retirees:

In 2015, the Medicare Part B premium cost $104.90 a month. By 2016 Social Security announced that there would NOT be a cost of living adjustment (COLA) during that year while the Medicare Part B premium increased by $16.90 a month to $121.80 (16.1% increase).

Since no one received an increase in their Social Security benefit everyone remained at the 2015 Medicare Part B premium of $104.90.

To further complicate matters, in 2017 Social Security provided a 0.3% COLA or roughly a $5.00 a month increase, but Medicare inflated by as much as 10% in that year to reach a premium of $134.00 a month.

The result: instead of retirees seeing that $5.00 a month COLA going into their pocket that $5.00 was paid directly to Medicare to help offset that year’s premium cost. Retirees received the same Social Security benefit as 2015 while their Medicare Part B premium rose to $109.80 a month.

By 2018 the Medicare Part B premium did not increase and, thankfully, Social Security provided a 2% COLA or roughly a $27.38 increase in benefits.

The problem though, retirees where still paying $109.80 a month for their Medicare Part B premium while the actual cost was still at $134.00 a month.

Instead of retirees receiving that $27.38 a month increase the difference they owed to Medicare for

Part B was subtracted, and they only received, on average, an increase of $3.28 a month.

Below is chart of what happened:

How the Hold Harmless Act works

How the Hold Harmless Act works

But what about Income?

Within Medicare there is a surcharge on top of Medicare Part B and Part D premiums. This is known as the Income Related Monthly Adjustment Amount (IRMAA).

Medicare will contact the IRS to see if a person is generating too much income in a given year. If it is higher than what is considered to be average (over $85,000 annually for individuals and $170,000 for couples), then, there will be added extra costs to both Medicare Part B and D premiums for that year.

The surcharges start at roughly 40% more and range as high as about 240% of those premiums. All surcharges are automatically deducted from any Social Security benefit being received.

In 2009 Congress through the “Medicare Premium Fairness Act”, unfortunately, changed the Hold Harmless Act. Today, anyone who enters Medicare’s IRMAA will no longer receive protection from the Hold Harmless Act.

Due to this Act in 2009 anyone within Medicare’s IRMAA will realize a decrease in Social Security benefits due too high of Medicare Part B increases.

Want to protect your Social Security benefit?

Solution: manage the income that is generated while retired to help control Medicare premiums.

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