Factors that affect increases in Medicare insurance rates throughout retirement
The answer to the following question, “Will Medicare Insurance Rates Keep Increasing Throughout My Retirement?”, is simply yes.
It’s important to understand what factors govern the increase in Medicare Part B premiums. For the past three decades, the US Congress has determined that Medicare Part B costs will be 25% funded by premiums paid by beneficiaries. The remaining 75% will be paid by the portion of the FICA tax collected for Medicare (2.9% of payroll split evenly between employees and employers), and general tax revenues to make up the difference. The Department of Health and Human Services (HHS) oversees the administration of Medicare and its funding. It is HHS which announces any increase in Medicare Part B premiums. When Medicare insurance rates increase, that reflects overall increases in Part B expenditures as healthcare costs rise and an increasing number of beneficiaries age and require more expensive medical care.
There is an aspect of Medicare that will hold down the rise in premiums somewhat and it’s the “hold-harmless” provision of Medicare. Essentially, this provision means that increases in Part B premiums reduce the recipient’s overall Social Security income. So during 2010 & 2011, when Social Security did not pay out a cost of living adjustment (COLA), existing Medicare Part B recipients did not experience any increase in their premiums. However, new recipients saw their initial Medicare insurance rates start higher than existing recipients in order for Part B premiums to pay for 25% of the cost of the insurance. This is just one good reason to file for Medicare benefits upon turning 65 as the “hold-harmless” provision will help keep those premium increases lower during times of low inflation.