Some Federal Retirees Will Have to Pay More Than Others For Medicare Part B Next Year

Many federal retirees with Medicare Part B coverage will have to pay 10 percent more in premiums beginning next year, according to the latest data from the Centers for Medicare and Medicaid Services.

CMS just announced the new premium and deductible rates for Medicare Part B, which covers physician services and outpatient hospital services, among other things. For 70 percent of beneficiaries, monthly premiums will increase roughly $4 in 2017, from $104.90 to $109. But for the remaining 30 percent – a group that includes hundreds of thousands of retired federal employees who are covered under the Civil Service Retirement System – the monthly premiums will rise about $12 in 2017, from $121.80 to $134.

The difference in premium rates between the two groups relates to the “hold harmless” provision in the Social Security Act, which mandates that the dollar increase in the Medicare Part B premium is limited to the dollar increase in their Social Security benefit, or cost-of-living adjustment. Retirees, including many federal retirees, learned in October that they would receive a COLA of 0.3 percent next year. Those federal retirees who contribute to and receive a Social Security benefit do not see a big increase in their Part B premiums under such circumstances because of the “hold harmless” provision, but that means other groups – which includes those who don’t receive Social Security -- shoulder a bigger portion of the hike. CSRS retirees do not pay into Social Security (unless they had a job outside of government at some point where they did contribute to Social Security).

“This year, as in the past, the [Health and Human Services] secretary [Sylvia Burwell] has exercised her statutory authority to mitigate projected premium increases for these beneficiaries, while continuing to maintain a prudent level of reserves to protect against unexpected costs,” said the statement from CMS. “The Department of Health and Human Services will work with Congress as it explores budget-neutral solutions to challenges created by the ‘hold harmless’ provision.”

National Active and Retired Federal Employees Association President Richard Thissen said that the combination of a low COLA for retirees and the Medicare Part B premium increases means that “many federal retirees will see a decrease [emphasis in original] in their federal annuities next year, diminishing their purchasing power and quality of life.”

Thissen said the issue is about more than money. “It is time to fix a congressional oversight that occurred when the hold harmless provision was initially enacted. Those who pay their Part B premiums from something other than Social Security should be treated the same way as those who do,” he said.

NARFE, along with 74 other organizations – among them associations advocating for retirees, federal employee unions, and health insurance companies -- sent the congressional leadership and the Obama administration a letter in September urging them to fix the situation, as lawmakers did in 2015, to “shield people with Medicare from the unintended consequences resulting from the application of the hold harmless provision. No beneficiary should be forced to pay more than they otherwise would simply because some beneficiaries are afforded critical protections against reductions in their Social Security checks.”

Last year, Congress acted to limit the projected Part B premium increase in 2016 for those not held harmless from 52 percent to 15 percent in the 2015 Bipartisan Budget Act. “While this agreement wasn’t perfect, it provided some relief to federal retirees, and I urge Congress to act just as quickly to prevent this unfair increase,” Thissen said in a Nov. 14 statement. Between the 2016 hike for those not held harmless and the projected 10 percent increase in 2017, many federal retirees with Medicare Part B coverage are looking at a 25 percent spike over a two-year period.

It’s not clear whether Congress will make another temporary fix for 2017, given there’s about a month left in the lame-duck session before the end of the year, and the cost difference between the two groups – roughly $8 – arguably is not significant. But Jessica Klement, NARFE legislative director, said the organization was “optimistic” that lawmakers would address the inequity. “We are working on it,” Klement said.

Congress hasn’t made a permanent fix to the “hold harmless” issue because it’s only had an effect a handful of times in the last 40 years based on the COLA history.

CMS last week also announced an increase in the annual Medicare Part B deductible for beneficiaries – from $166 in 2016 to $183 in 2017.