The rising cost of healthcare has posed a major threat to the financial lives of all Americans over the past several decades, and even those who are fortunate enough to have Medicare coverage aren't immune from the impact of higher healthcare costs. As the Trustees of the Medicare Trust Fund warned earlier this year, a big rise in the costs borne by Medicare will require a big increase in the amount of money the government program collects from its participants. Yet one well-meaning yet unfair provision in the Social Security Act has made what would already have been a major hit to senior citizens and turned it into a full-blown Medicare crisis, pitting some groups of participants against others and raising questions about whether it makes sense to give some of those on Medicare an advantage over others.
How 2 laws combined to create a 50% cost gulf
The part of Medicare that covers doctor visits and outpatient healthcare expenses is called Medicare Part B. Unlike Part A coverage for hospital visits and inpatient procedures, Part B requires its participants to pay monthly premiums. For 2015, the amount that most Medicare participants paid for Part B coverage was $104.90 per month.
Medicare law governs the process that sets Part B's monthly premium, as well as other key aspects of the Medicare program such as deductibles that must be satisfied out-of-pocket before coverage kicks in. In guiding the government agency that oversee Medicare, the law says that the government must recoup about a quarter of the money that Medicare pays out for covered healthcare expenses, and so it sets premiums and deductibles in such a way that Medicare responds to the loss history that it underwent in the past. According to the Medicare Trustees, the program's loss experience will require it to collect about 15% more in 2016 than it did in 2015.
If all those costs were borne equally, that would lead to an increase in the premium that most participants pay to $120.70. Yet because of a second law, known as the hold-harmless provision, those costs won't be borne equally. The hold-harmless provision says that those who have Medicare premiums automatically taken from their Social Security checks can't have their premiums rise more than the amount of their cost-of-living adjustment. Because there won't be such an adjustment in Social Security for 2016, the roughly 70% of Medicare recipients who qualify will pay the 2015 amount of $104.90.
The rest of Medicare's participants have to make up the difference. That includes new enrollees, Medicare participants who don't get Social Security, and those high-income individuals who pay more than the baseline premium amount. In addition, although those who qualify for both Medicare and Medicaid don't bear the costs of higher premiums themselves, the states that cover those costs don't qualify for hold-harmless treatment and thus must pay higher premiums as well. Estimates put the basic premium for those who'll bear that burden at $159.30, more than 50% higher than 2015's premium amount.
Why should some pay more?
One can make reasonable arguments on both sides of the fairness debate for some groups. For instance, for the more than 3 million participants who have incomes above $85,000 for singles and $170,000 for couples, higher premiums arguably reflect their greater ability to pay, and the concept of means-testing -- though controversial -- has considerable support.
Yet the rest of the distinctions between those who'll pay more and those who won't are almost completely arbitrary. Simply by having the misfortune of claiming Medicare for the first time, new participants face the prospect of paying more than $650 in additional premiums for 2016. Even worse, those who've made the financial prudent decision to delay taking Social Security -- a decision that the Social Security Administration and other government agencies have encouraged -- will be penalized by having to pay more in Medicare premiums.
This isn't the first time this unfairness has occurred, but it could potentially be the most severe. In 2010 and 2011, Social Security cost-of-living adjustments didn't occur, and that locked Medicare Part B premiums at $96.40 per month for those eligible for the hold-harmless provision while sending others' payments up to $110.50 in 2010 and $115.40 in 2011. By 2012, cost-of-living adjustments were back, and everyone's baseline premium fell back to $99.90.
With the exception of high-income earners, all Medicare participants face similar financial challenges in dealing with rising premium costs. For a hold-harmless provision to make sense, it should apply to all of those in the program in the same financial straits, rather than forcing some who can ill afford any additional expense to bear the extra costs so that privileged counterparts can get an unfair discount.