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A recent deal between Congress and the White House averted a full-blown Medicare crisis that would have forced millions of Medicare recipients to pay a huge increase in their monthly Medicare Part B premiums. Although the deal doesn't entirely eliminate higher premiums, it does cut $450 off the annual premium expenses for those participants that it covers.

Why Medicare needed saving
Medicare law requires that participants bear some of the costs of the program, and as the program's trustees warned in their latest annual report, higher expenses that Medicare incurred increased the amount that it would have to collect from Medicare recipients in premiums.

The problem, though, is that Medicare isn't allowed to collect higher premiums from all of its participants. Because a falling Consumer Price Index eliminated cost-of-living adjustments for Social Security for 2016, hold-harmless provisions prevented Medicare from boosting premiums on the roughly 70% of its participants who have their premiums withheld from their monthly Social Security checks.

That left the remaining 30% of those on Medicare potentially having to pay the full increase themselves. Projections suggested that the monthly premiums would have gone from $104.90 this year to as much as $159.30 next year, a surge that would have cost participants more than $650 in additional premium payments over the course of 2016.

How the deal got done
The final budget deal between Congress and the White House handled the situation in a way that eliminated much of the unfairness that the hold-harmless provision creates. The law requires Medicare to calculate the increase in the standard premium as if all participants would end up paying it, preventing those who aren't covered by the hold-harmless provision from having to subsidize the premium savings for those who are. In addition, a $3 per-month premium surcharge will be added to the monthly bill for those not covered by hold-harmless provisions, with the intent for the surcharge to continue in future years until the $7.4 billion in money transferred from general government revenues is repaid in full.

As a result of the deal, Medicare Part B premiums will still go up for those who aren't covered by the hold-harmless provision. But rather than facing a 52% increase, the rise will be a much more modest 16%. Monthly premiums, including the $3 surcharge, will be $121.80, amounting to $450 less over the course of the year than participants would have had to pay under the old law.

How high-income Medicare participants saved even more
The provision was even more favorable for the more than 3 million Medicare participants whose incomes are high enough to have to pay premiums above the standard amount. For those with incomes above $85,000 for singles and $170,000 for couples, premiums will range from $170.50 to $389.90 per month, with the maximum amount applying for income levels above $214,000 for singles, or $428,000 for couples. For those in the top bracket, that will translate to a jump in premiums of more than $650 for 2016. Yet their savings from the recent legislation will amount to more than $1,400, as they'll avoid the much larger jump of almost $2,100 in annual premiums that they would have owed under previous law.

The budget deal prevented what would have been a catastrophic increase in Medicare premiums for many cash-strapped retirees who rely on the program for their healthcare. Even though many participants will have to find extra money to pay higher costs, the deal is still a victory for those for whom $450 in annual savings is a critical part of making ends meet in retirement.

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