Medicare’s Hold Harmless Act: unfortunately, it’s not for everyone

Medicare’s Hold Harmless Act – An act written into Medicare by laws through the Medicare Catastrophic Coverage Act of 1988 and then revamped in 2009, by “Medicare Premium Fairness Act”, that has been designed to protect seniors’ Social Security cost of living adjustments (COLA’s) from being consumed by Medicare premium increases year by 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.

A simple example of how this Act will help protect Medicare beneficiaries:

Person A happens to be earning $1,050 a month from Social Security in 2013 then in 2014 the Social Security COLA just happens to be 1.0% or $10.50 a month giving Person A a total of $1,060.50 a month in income.

As the COLA only increased $10.50 this would mean no matter how high Medicare Part B inflates too, according to rule, the most this person can be charged is the $10.50 more than the original amount of Part B in 2013, or the total of $115.40 a month.

Thus the Medicare Hold Harmless Act protects Person A’s Social Security income from decreasing due to increases in Medicare Part B premiums on an annual basis, but it doesn’t protect them from realizing the fact that their entire COLA was consumed by Medicare inflation.

BUT, unfortunately, there are still some issues with this Act:

1) This Act only protects seniors from increases in Medicare Part B premiums and not from Part D premiums.

So even though Person A’s Part B premium could only increase that $10.50 no matter where Medicare Part B was/is set at, for Part D premiums (which are set by private health insurers) they can inflate as high as they want.

Again, the Hold Harmless Act will only prevent Person A’s Medicare Part B premium from increasing more than $10.50 and will not protect Person A from the increase within Part D.

2) Too much income. For those seniors who have not planned accordingly in retirement and are receiving “too much income”, they will not be protected by the Hold Harmless Act no matter how high Part B premiums increase verse how low Social Security COLA’s are.

If Medicare Parts B happens to inflate by $100 a month while Social Security announces that there will be no COLA adjustment then those who fall into the category of “earning” too much income will not be “Held Harmless”.

In fact, they will be harmed in a way that will see their Social Security benefit decreased for the entire year and the key this is, obviously, income which Medicare deems to be:

“Your adjusted gross income PLUS any tax exempt income or everything on lines 38 and 8b of the IRS form 1040”.

Some examples of income are:

Wages, Social Security, Income from Pensions, Rental Income, Capital Gains, Dividends (including those from Muni Bonds), withdrawals from any Traditional IRA, 401(k), 403(b), 457, SEP, Keough, and certain Annuities.

What is not income:

Certain types of Life Insurance, specific Investments and select Annuities along with HSA’s, Reverse Mortgages and 401(h) plans.

The Hold Harmless Act was created to help seniors maintain their Social Security benefits throughout retirement which is dearly needed as Social Security has reported that roughly 53% of married couples and 74% of unmarried persons receive 50% or more of their income from Social Security.

The issue, even with the Hold Harmless Act in place these seniors could see any increases they do receive from Social Security, through COLA’s, be eaten away by Medicare premiums and for those seniors who happen to be earning too much income, they may see their Social Security benefit decrease or even possibly vanish over time.

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