Congress has made a move to head off a potential premium spike for some Medicare beneficiaries.
As part of a short-term government funding bill passed by the Senate on Wednesday and signed by President Trump, any increase in Medicare Part B premiums for 2021 would be capped at 25% of what it otherwise would be for 2021.
While it's still uncertain what the standard premium would be for 2021 — it is based on an actuarial formula and typically revealed in early November for the next year — estimates have proved tricky this year due to economic upheaval from the coronavirus pandemic.
"One thing that's really hard about this year is that there's been increased costs from treating Covid, but decreased cost from people delaying care or avoiding being in hospitals or doctors offices," said Casey Schwarz, senior counsel for education and federal policy at the Medicare Rights Center.
"Normally, we'd pretty much know by this time what the premium will be," Schwarz said.
Part B covers outpatient care, medical equipment and certain other medical services. Part A, which has no premium and is funded separately by a trust fund, provides hospital coverage. Together, those parts comprise basic Medicare.
The Medicare trustees forecasted in April that the standard 2021 Part B premium would rise to $153.30 in 2021 from $144.60 this year ($8.70 more monthly, or a 6% increase). However, the trustees' report noted that the impacts of Covid-19 were unknown and therefore could not be factored into the estimates.
While many of Medicare's 62.7 million beneficiaries are protected from large Part B premium hikes, others are not. And, higher-income beneficiaries already pay extra each month.
Part of the issue is how those premiums interact with Social Security benefits and the associated annual cost of living adjustment, or COLA.
If a Part B premium increase would eat up more than a Social Security recipient's COLA in any given year, the person is "held harmless" and won't see their Social Security benefits go down. (Their Part B premiums generally are withheld from their Social Security payments.)
"People who are held harmless can see a premium increase, but it can't be larger than their COLA dollar-amount increase," Schwarz said.
At that point, the aggregate unpaid amount by those held harmless is shifted to other Medicare beneficiaries, which includes those who aren't on Social Security (i.e., they haven't claimed yet), new Medicare enrollees and individuals who are dually enrolled in Medicare and Medicaid. So, with that subset of beneficiaries absorbing the extra, a spike can happen, depending on the amount they must subsidize.
It's uncertain what the Social Security COLA for 2021 will be. The Senior Citizens League, a nonpartisan advocacy group for older Americans, is estimating it will be 1.3%.
Part B is funded through both premiums (25%) and money from the federal government's general revenue (75%). Every year, the Department of Health and Human Services adjusts the standard premium to reflect that formula and program costs.
"What seems to be motivating Congress is the fear that there will be an unexpected spike in premiums, or one that's out of step with normal premium increases across the board, or specifically for those not held harmless," Schwarz said.
Medicare Part B premiums are among the fastest-growing costs in retirement, up 218% from 2000 through 2020, said Mary Johnson, Social Security and Medicare policy analyst for the Senior Citizens League. That compares to cumulative inflation of about 54%, according to the Bureau of Labor Statistics.