Medicare Part B Premiums Are Scheduled to Rise 52% in January

By on August 31, 2015 in Retirement with 324 Comments

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Starting in January, most retirees under the Civil Service Retirement System (CSRS), who also are enrolled in Medicare Part B, will see a 52% jump in their monthly Medicare premiums due to rules that determine increases in monthly Social Security benefits and Part B premiums.

The story begins with inflation, or the lack of it.

Social Security monthly benefits are increased each year based on a complicated formula using the All Items index of the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).

While the final cost-of-living adjustment will not be determined until October, the current 12-month index shows no increase in inflation, mainly due to low oil prices, which means that Social Security and federal retirees (whose COLA is also determined by the CPI-W) could expect to see no increase in their monthly benefits in January.

Even though the current overall rate of inflation is zero or even slightly negative, medical costs continue to increase. Under the law, revenues must equal 25% of the cost of Medicare Part B, so Medicare Trustees have determined that Part B premiums would need to rise from the current $104.90 per month to $120.79 beginning in January to meet the 25% requirement.

But, the Social Security Act also has a “hold harmless” clause, which states that increases in Part B premiums may not result in a decrease in Social Security monthly benefits. If there is no COLA for Social Security, Part B premiums cannot rise in 2016 for Social Security beneficiaries who pay for their Part B premium by having them deducted from their monthly Social Security benefits. For these folks, the Part B monthly premium will remain $104.90.

As a result, to reach their 25% cost requirement under the law, the Trustees plan to increase the Part B Premiums to $159.30 per month for everyone participating in Medicare Part B but not having their premiums deducted from their monthly Social Security benefits.

Essentially, to meet the requirements of the law, 30% of Part B enrollees will subsidize the 70% of enrollees who have their premiums deducted from their monthly Social Security payments.

This impacts several groups, including CSRS employees who have never earned the 40 work quarters needed to qualify for Social Security. While CSRS retirees also will not receive a COLA, they will be expected to pay the additional $54.40 per month for Part B coverage. If FEHB costs increase, then they will have to absorb those higher costs as well, or choose to drop coverage.

Premium increases will also impact people who have delayed starting or suspended their Social Security benefits, individuals first becoming eligible for Medicare in 2016 who are not receiving Social Security, and high-income participants who are required to contribute more because their income exceeds certain thresholds.

The National Active and Retired Federal Employees Association (NARFE) estimates that adults and people with disabilities affected by the projected premium increase include new Medicare enrollees in 2016 (2.8 million); individuals not collecting Social Security benefits or only collecting minimal Social Security benefits, including the previously mentioned federal retirees covered under CSRS with insufficient private-sector earnings (1.6 million); and beneficiaries already paying higher, income-related premiums (3.1 million).

This is not the first time this problem has occurred, but the situation will be costlier for non-Social Security recipients in 2016. In 2010, non-Social Security recipients paid an additional $14.10 a month, while in 2011, non-recipients paid an additional $19.00 each month due to this same law.

For 2016, the cost to non-Social Security recipients to receive the same coverage under Medicare Part B will be $54.40 more each month.

In 2009, legislation to fix the problem, H.R. 3631, the Medicare Premium Fairness Act (111th Congress) passed the House by a vote of 406 to 18 but never got a vote in the Senate in time. The legislation would have extended the effect of the hold harmless provision – no premium increase – to those for whom the hold harmless provision did not apply.

NARFE points out that because the legislation was not passed into law, federal retirees and millions of others were forced to bear a disproportionate cost of the premiums in 2010 and 2011. NARFE is now urging Congress to advance a similar proposal to prevent or mitigate the sizable Part B premium increases projected by the Trustees in 2016.

It is now up to Congress and the Administration to decide whether to allow the higher premiums for non-Social Security beneficiaries covered by Medicare Part B beginning in January 2016.

No doubt, NARFE will be reaching out to its members to contact their Representatives and Senators over the coming weeks concerning this issue.

© 2016 Michael Wald. All rights reserved. This article may not be reproduced without express written consent from Michael Wald.


About the Author

Michael Wald is an independent economics analyst and writer based in the Atlanta area. He specializes in topics related to business, labor, and human resources. Prior to his retirement from the U.S. Department of Labor, he served as the agency’s Southeast Regional Director of Public Affairs and Southeast Regional Economist.