LegiStorm

Summary:

Social Security and Medicare assist in providing financial security to most elderly and disabled individuals in the United States. Certain interactions between Social Security and Medicare may have important financial implications for individuals who are enrolled in both programs. Social Security provides monthly cash benefits to retired or disabled workers and their family members. The Social Security benefits that are paid to retired workers are based on workers’ past earnings. Medicare is a federal insurance program that pays for covered health care services for most individuals aged 65 and older. Medicare Part B and Part D are voluntary, premium-based programs for Medicare beneficiaries providing coverage for physician services (Part B) and prescription medications (Part D). Standard Medicare Part B and Part D premiums are set at a rate each year to cover approximately 25% of per capita program costs. Highincome beneficiaries may pay higher than standard premiums. Individuals who are enrolled in both Social Security and Medicare must have their Medicare Part B premiums automatically deducted from their monthly Social Security benefit and may choose to have their Medicare Part D premiums automatically deducted from their monthly Social Security benefit. Although annual adjustments are made to both the Social Security benefit an individual receives and the Medicare premiums an individual pays, these adjustments are indexed to different inflation measures. The Social Security annual cost-of-living adjustment (COLA) is based on the Consumer Price Index-Urban Wage Earners and Clerical Workers (CPI-W), which is a measure of general inflation. Medicare premium growth, by contrast, is based on program expenditure growth, which reflects spending for covered medical services. These different adjustment measures have resulted in Medicare premiums that typically increase at a rate greater than Social Security COLAs. From 2000 to 2018, Social Security COLAs have averaged a 2.2% annual increase, resulting in a cumulative benefit increase of approximately 50%, considerably less than the average 6.1% annual increase in standard Medicare Part B premiums, which has resulted in Medicare Part B premium growth of close to 195% over the same period. As a result, a greater percentage of total Social Security benefits is being deducted to pay for Medicare premiums. Congress has acted several times to protect beneficiaries from the impact of large Medicare Part B premium increases. The hold-harmless provision, made permanent by P.L. 110-360 § 211(b), modified the Social Security Act to prevent certain Social Security beneficiaries’ monthly benefit amount from decreasing from one year to the next due to an increase in Medicare Part B premiums. The hold-harmless provision does not apply to Medicare Part D premiums and does not cover several groups of beneficiaries including high-income individuals, Medicare Part B enrollees who do not receive Social Security benefits, new enrollees, and low-income beneficiaries (typically, Medicaid will pay low-income beneficiaries’ Medicare Part B premiums). When a majority of beneficiaries are held harmless, such as in years with no Social Security COLA, premiums are typically still calculated to cover 25% of the expected costs of the Medicare Part B program; thus, those not held harmless may bear the burden of meeting any resulting increase in premiums disproportionately. The Medicare Trustees’ long-range projections indicate that Medicare per capita cost growth will increase greater than inflation as measured by the CPI-W, increasing Medicare premiums at a faster rate than Social Security COLAs. The Medicare Trustees therefore project that a larger portion of Medicare beneficiaries’ Social Security benefits will be required to pay standard Medicare Part B and Part D base premiums in the future. For example, in 2018, Medicare Part B and Part D premiums account for approximately 12.4% of the average Social Security benefit; the Medicare Trustees project that this will increase to approximately 14.0% in 2028 and to approximately 16.8% of the average Social Security benefit in 2092.