Those entitled to Medicare Part A have the option of enrolling in Medicare Part B, which provides coverage for physicians' services, outpatient hospital services, durable medical equipment, outpatient dialysis, and other medical services. The Social Security Act (SSA) includes a provision that holds most Social Security and Railroad Retirement Board beneficiaries harmless for increases in their Medicare Part B premiums that exceed the dollar amount of the increase in their Social Security checks. Affected beneficiaries' Part B premiums are reduced to ensure that their Social Security benefit checks do not decline from one year to the next. In a typical year, this hold - harmless provision affects a small fraction of beneficiaries and has a limited impact on program finances. However, in a year in which Medicare Part B premiums increase but Social Security benefits do not, the effects of the hold-harmless provision are larger and more complex. This report provides an overview of Medicare Part B premiums, the relationship between the Social Security cost-of-living increase (COLA) and Part B premiums, and the potential impact of a projected 0% Social Security COLA in 2016 on Medicare premiums, based on recent projections by the Medicare Trustees. Medicare Part B Premiums

Most people who elect to participate in the Medicare Part B program pay the Part B premium. Part B costs not covered by premiums are paid for through transfers from the General Fund of the Treasury. In 2015, about 5.6% of Medicare beneficiaries pay these higher premiums. Depending on their level of income, beneficiaries may be classified into one of five income categories. Additionally, Part B premiums are deducted from the benefits of those receiving a Federal Civil Service Retirement annuity. The Social Security Administration therefore expects that there will be no COLA in 2016. Specifically, if in a given year the increase in the standard Part B premium would cause a beneficiary's Social Security check to be less, in dollar terms, than it was the year before, then the Part B premium is reduced to ensure that the amount of the individual's Social Security check does not decline. If there were to be a 0% Social Security COLA and an increase in Medicare Part B premiums in a given year, as in 2010 and 2011, the majority of Medicare beneficiaries would be protected by the hold-harmless provision. The beneficiaries who are not held harmless therefore shoulder the entire beneficiary share of the increase in Part B costs. But, as previously noted, the trustees also expect that there will be no Social Security COLA in 2016 and that the hold-harmless provision will apply to most beneficiaries. Because most beneficiaries would be held harmless in this situation and their premiums would remain at the 2015 amount ($104.90 per month), the premiums of the 30% of beneficiaries not held harmless would need to cover all of the expected increased costs so that 25% of Part B costs would still be covered by beneficiary premiums. Impact on Beneficiaries

			Most Beneficiaries Would Be Held Harmless

About 70% of all Part B enrollees are expected to be held harmless for the increase in Part B premiums in 2016. As previously noted, persons not eligible to be held harmless include higher-income beneficiaries who pay income-related Part B premiums, lower-income beneficiaries whose premiums are paid by Medicaid, new enrollees to either Medicare Part B or Social Security in 2016, and persons whose premiums are not deducted from Social Security benefits. In 2016, about 6% of Part B enrollees are expected to be subject to income-related premiums and therefore would not be held harmless. As previously described, in the absence of a Social Security COLA, Part B premiums must be increased substantially on those who are not held harmless to prevent potential SMI Trust Fund exhaustion (see " Effect on Those Not Held Harmless ," above). The federal-state Medicaid program pays the entire amount of these beneficiaries' Part B premiums, including any increase. However, given that the SSA also requires that income from beneficiary premiums be set at 25% of expected per capita costs and that income to the SMI Trust Fund from general revenues be based on the aggregate dollar amount of beneficiary premiums, CMS has determined that substantially increasing the premiums on those not held harmless is the only way to make up for the revenue shortfalls caused by the hold-harmless provision.
Medicare Part B covers physician services, outpatient care, durable medical equipment, laboratory services, and some home health services. Most beneficiaries pay a monthly Part B premium that is set at a rate to cover about 25% of the costs of Part B. The General Fund of the U.S. Treasury covers most of the remaining costs.
These monthly Medicare Part B premiums are automatically deducted from the checks of Social Security beneficiaries. Current projections indicate that there will be no Social Security cost-of-living adjustment (COLA) in 2016, which means that monthly Social Security benefit amounts will not be increased. However, total Medicare Part B program costs are expected to grow. Because Part B premiums must cover 25% of projected Part B costs, premiums are also expected to increase.
The Social Security Act (SSA) includes a provision that holds most Social Security beneficiaries harmless from increases in the Medicare Part B premium that exceed the dollar amount of the increase in their Social Security checks. Affected beneficiaries' Part B premiums are reduced to ensure that their Social Security checks do not decline from one year to the next. In a typical year, the hold-harmless provision affects a small fraction of beneficiaries and has a limited impact on program finances. However, in a scenario where Medicare Part B premiums increase but Social Security benefits do not, such as in 2010 and 2011, the effects of the hold-harmless provision are larger and more complex.
If there were to be no Social Security COLA in 2016, Medicare Part B premiums would be affected in two ways. For about 70% of Part B participants, the hold-harmless provision would prevent their Part B premiums from increasing, so their Social Security checks would remain the same. For the other 30% of beneficiaries, the hold-harmless provision would not apply. These individuals would shoulder the entire beneficiary share of the increase in Part B costs.
The hold-harmless provision does not apply to four main groups of beneficiaries (there may be some overlap among groups):
Low-income beneficiaries whose Part B premiums are paid by the Medicaid program (about 19% of beneficiaries); High-income beneficiaries who are subject to income-related Part B premiums (about 6% of beneficiaries); Those whose Medicare premiums are not deducted from Social Security benefits (about 3% of beneficiaries); and New enrollees in 2016 (about 5% of beneficiaries).
Additionally, late-enrollment premium surcharges would be based on the premium amount of those not held harmless. Thus, those held harmless in 2016 who pay a late-enrollment penalty may still see reduced Social Security benefits as a result of the increased surcharges.
The substantial majority of those not held harmless are low-income beneficiaries whose Part B premiums are paid by the federal-state Medicaid program. As a result, most of the cost of the increase in Part B premiums in 2016 would be paid by Medicaid.
The statutory formula for determining the general revenue portion of Part B funding is based on aggregate beneficiary premiums. Therefore, unless Part B premiums are increased substantially on those who are not held harmless, the Supplementary Medical Insurance (SMI) Trust Fund, which finances Part B, would be at risk of exhaustion during the year.
On October 15, 2015, the Social Security Administration announced that there would be no Social Security COLA in 2016. Subsequent to that announcement, on November 2, 2015, the Bipartisan Budget Act of 2015 (BBA 2015; P.L. 114-74) was enacted. Section 601 of that act mitigates the expected sharp increases to Medicare Part B premiums for enrollees not held harmless and the deductibles for all enrollees in 2016. On November 10, 2015, the Centers for Medicare & Medicaid Services (CMS) issued the Part B premiums for 2016 using the determination methodology prescribed in the BBA 2015. As noted in this report, those enrollees held harmless will continue to pay the 2015 rate of $104.90 per month in 2016. Those not held harmless will pay monthly premiums of $121.80, and higher-income enrollees will pay $170.50, $243.60, $316.70, or $389.80, depending on their level of income.