Patricia Barry - Medicare For Dummies

Under the law, people who receive Social Security benefits are protected from having those payments cut due to increased Part B premiums. So if there is no Social Security COLA in a given year, but the Part B premium is increased in that year, those people are “held harmless” — meaning that the increase is waived and they do not have to pay higher premiums than they did the previous year, which sounds only fair.

However, under another long-established law, Part B premiums must be set to cover about 25 percent of expected costs in the program for the coming year. When costs rise, premiums go up. But if the people who are held harmless cannot contribute to that increase, who pays? The answer is this: everybody else in Medicare. They include

Those who do not receive Social Security or Railroad Retirement benefits: These include people who have not yet applied for benefits; former federal, state, or local government workers who have their own pension systems; and people under age 65 whose disability benefits have been discontinued because they returned to work, but still qualify for Medicare.

Those who are new to Medicare, even if they do receive Social Security benefits: You must have received benefits in November and December and had Medicare premiums deducted from them (in advance) for the months of December and January to be held harmless during the rest of the year.

All those who pay the higher income-related premiums, regardless of whether they receive Social Security payments: Refer to the earlier section “ Paying Higher-Income Premiums” for more info on whom this applies to.

Lower-income beneficiaries who receive Medicaid or whose Part B premiums are paid by their state: But in this case, it is the state that pays the increased premium, not the beneficiary.

This is where the Medicare Hold Harmless provision comes in. The provision ensures that people who receive Social Security won’t see significant reductions in their monthly payments when Medicare Part B premiums outpace the cost-of-living adjustment (COLA) each year.

For example, in 2016, those held harmless paid $104.90 a month, whereas the standard premium for everyone else was $121.80. In 2017, when the COLA was a measly 0.3 percent, the standard premium remained at a few dollars above that amount (depending on a person’s individual COLA increase) for people held harmless but went up to a record $134 for everyone else. In 2020, a 1.6 percent COLA adjustment was less than the 2.8 percent adjustment in 2019, but it will increase the average beneficiary’s total benefit by about $24 a month, which should cover the roughly $9 increase in Part B premiums.

The Social Security COLA is always pegged to the Consumer Price Index, a measure that shows overall inflation in consumer prices. In 2010, 2011, and 2016, the CPI reflected zero or negative inflation mainly because of falls in the cost of oil. The CPI in 2020 is 1.3 percent, significantly lower than a high of 2.13 percent in 2017. However, the CPI does not include health-care costs, which are a big slice of everyday expenses for Americans, especially those in the Medicare age bracket.

I’ve been asked this question quite frequently: “I’m over 65 and still working, but I’m enrolled in Medicare. Should my employer still be deducting Medicare payroll taxes from my earnings?”

Yes, indeed. The law requires you to pay Medicare taxes on all your earnings for as long as you continue to work — regardless of whether you’re already receiving Medicare benefits.

I’ve also been asked the exact reverse of the preceding question: “I’m 60, and my employer recently quit taking Medicare and Social Security out of my wages. Should this be happening?”

No, absolutely not! Failing to pay these taxes can jeopardize your benefits in later years. But it’s not an uncommon situation. “Sometimes employers stop withholding tax from employees’ wages under the mistaken notion that they can choose to treat employees as independent contractors,” IRS officials told me. “Employee misclassification is a serious problem that can result in penalties against the business.” Yet misclassification can make a big difference to your income. If you’re an employee, your employer must by law pay half of your Medicare and Social Security payroll taxes. If you’re an independent contractor, your share is much more.

The IRS says that if you’re an employee who believes you’re being incorrectly treated as an independent contractor, you should file Form SS-8, Determination of Worker Status for Purpose of Federal Employment Taxes and Income Tax Withholding. An employer can also file this form to clarify how a worker should be classified. Form SS-8 is available online at www.irs.gov/pub/irs-pdf/fss8.pdf .

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