Benefit Bulletin: June 2020

Benefit Bulletin: June 2020

Medicare Premiums Could Spike Due to Coronavirus

By Rick Delaney

The coronavirus has hit older Americans particularly hard and sent tens of thousands of Medicare recipients to hospital emergency rooms and intensive care units.  That type of care comes with particularly pricey out-of-pocket costs which we expect will drive up Medicare Part B spending for 2020.  We are particularly concerned that Part B spending will drive up Part B premiums for 2021 along with it.

The unexpected and high utilization of Medicare services in fighting the coronavirus is not the only factor affecting Medicare premiums.  A “coronavirus-recession” could send Part B premiums through the roof.  If the economy does not spring back over the next four months the current rate of deflation is severe enough that it appears likely there may not be any Social Security cost-of-living adjustment (COLA) payable in 2021.  Should that occur, a special provision of law called “hold harmless” would be triggered, and Part B premium costs could soar — perhaps by more than 20% which is what happened the last time the COLA was zero in 2016, which occurred even with no pandemic costs.

Hold harmless provisions protect the Social Security benefits of most Medicare beneficiaries from reduction due to exploding Part B premium costs in the short term, higher Part B premiums will consume a far greater chunk of Social Security benefits in future years.  Extremely low growth in COLAs, combined with spiraling Medicare premiums and out-of-pocket healthcare costs, force older adults to spend greater portions of their Social Security benefits on healthcare.  According to the non-partisan Kaiser Family Foundation, Medicare beneficiaries’ average out-of-pocket spending is projected to rise as a share of Social Security income from about 41% today to 50% by 2030, but a crisis this unprecedented could move that forecast forward.

Rapidly-rising Medicare premiums have big implications for Social Security benefits, since the Part B premium is automatically deducted from Social Security benefits.  Medicare premiums often consume the entire amount of the annual COLA.  After deductions for Medicare Part B and other premiums, beneficiaries can wind up without any increase in net Social Security benefits, and sometimes even lower benefits than the prior year, leaving nothing with which to cope with other rapidly rising costs, such as prescriptions, housing repairs, or auto insurance.

TSCL strongly endorses Social Security and Medicare legislation that would address these problems, by modestly boosting Social Security benefits and COLAs, and reducing out-of-pocket Medicare costs — particularly for prescription drugs.  Social Security can be strengthened, and benefits modestly boosted, if the Social Security payroll tax were applied to a higher portion of earnings.  What do you think about proposal to lower Medicare costs?  Please take TSCL’s Survey of Senior Costs.