Hundreds of thousands of federal retirees could pay higher Medicare premiums in 2016 than most other enrollees will pay due to a combination of low inflation and a quirk in the law.
Most of those retired under the Civil Service Retirement System are excluded from a “hold harmless” provision that keeps an individual’s Medicare Part B premium steady if his or her Social Security benefit does not rise enough to cover the increase in those premiums.
Through nine months of the counting period toward the January Social Security cost-of-living adjustment, or COLA, beneficiaries currently stand to receive no increase. The COLA is determined by the change in a cost of living index from the third calendar quarter of one year to the next.
That indicator — which also is used to adjust federal annuities and military retirement payments among other benefits — stands at minus 0.2 percent, largely due to deflation driven by falling energy prices early in the measuring period. In recent months the indicator has been trending toward the positive.
Medicare recently said that while 2016 premiums won’t be set until late October, “approximately 70 percent of beneficiaries are expected not to see a premium increase in 2016 because it is projected that there will be no cost-of-living increases in Social Security benefits. The remaining 30 percent of beneficiaries would pay a higher premium based on this projection.”
That 30 percent includes those who enroll in Part B for the first time in 2016; enrollees who do not pay premiums from a Social Security benefit; and enrollees who pay an income-related higher premium.
The monthly premium for Part B, which covers outpatient services, is $104.90, and by some projections could jump in 2016, since the law requires that a quarter of total Medicare costs come from enrollee premiums.
For many, just a relatively small Medicare premium increase could exceed a small Social Security COLA, even if one is paid, causing the “hold harmless” provision to take wide effect. In that case, the burden of paying for the entire additional Medicare enrollee share would fall on those excluded from that protection, causing them to pay still higher premiums.
Most of those retired under CSRS would fall into that category because that program does not include Social Security. About nine-tenths of current federal employees are under the separate Federal Employees Retirement System, which generally applies to those first hired after 1983 and does include Social Security. However, about three-fourths of retirees, nearly 1.5 million, draw benefits from the CSRS system.
Some CSRS employees do qualify for Social Security benefits through other employment in which they paid into that system, and some fall under a hybrid that includes Social Security. The National Active and Retired Federal Employees Association estimates that more than 800,000 CSRS retirees would have to pay the higher premiums, as the law and the inflation count stand now.
“NARFE will be working with Congress to shield those who are not currently held harmless from a sharp increase in Medicare premiums in 2016 should there be no COLA next year, or a COLA smaller than the increase in premiums,” NARFE President Richard Thissen said in an e-mailed comment.
A similar situation applied in 2010 and 2011 when no COLAs were paid due to the decline in living costs in the preceding recession. In those years, CSRS retirees and others excluded from the protection paid premiums about $15-$20 higher per month than those paid by most Medicare enrollees. Congress had considered, but did not pass, legislation to prevent that difference.
Federal retirees typically are eligible to carry their government-sponsored Federal Employees Health Benefits Program coverage into retirement but the large majority of them also enroll in Medicare when they become eligible, normally at 65. Medicare then takes over as the primary payer with the FEHBP plan acting as a supplement.