No, Medicare Part B cost hikes aren't based on inflation, like Social Security's COLA

The Center for Medicare and Medicaid Services (CMS) announced on Oct. 12, 2023, the 2024 premium, deductible and coinsurance amounts for various Medicare programs. The annual deductible and standard monthly premium for Medicare Part B, which are recalculated every year, went up by 6.2% and 5.9% respectively.

Multiple VERIFY readers texted us questions about the looming increase in individual Medicare costs, including Alicia who asked if it’s unusual for the increase to outpace the annual Social Security cost-of-living adjustment (COLA), which is rising by 3.2% next year.

THE QUESTION

Are Medicare Part B costs based on inflation, like Social Security’s COLA?

THE SOURCES

• Centers for Medicare and Medicaid Services (CMS)
• U.S. code
• Social Security Administration (SSA)

THE ANSWER

No, Medicare Part B costs are not based on inflation. Medicare Part B premium and deductibles are calculated using a separate, unrelated formula from Social Security’s inflation-based COLA.

WHAT WE FOUND

Medicare Part B is the part of Medicare that is used to cover medical costs outside of hospital care and prescription drugs. 

Just like with other kinds of health insurance, Medicare enrollees typically have to pay a deductible and a monthly premium. A deductible is the amount you pay out-of-pocket until coverage kicks in, and the monthly premium is the amount you pay each month to maintain your coverage.

The standard monthly premium for Medicare Part B enrollees will increase from $164.90 in 2023 to $174.70 in 2024. The annual deductible for all Medicare Part B enrollees will increase from $226 in 2023 to $240 in 2024, the Center for Medicare and Medicaid Services (CMS) says. That’s a 6.2% and 5.9% increase, respectively. 

Before determining the new Part B monthly premium and annual deductible, CMS first has to calculate both the projected cost of benefits of Part B benefits and administrative expenses for the upcoming year, the CMS notice announcing the 2024 Part B costs says. CMS adds these two expenses and then divides that number in half to get what it calls the monthly actuarial rate.

Part B’s monthly premium and annual deductible are based on this monthly actuarial rate.

U.S. code mandates that the monthly premium is half of the monthly actuarial rate. The idea is that Medicare Part B enrollees fund a quarter of Part B’s total costs through their monthly premiums, the CMS notice says.

The annual deductible increases by the same ratio as the monthly actuarial rate, the CMS notice says. 

Social Security’s cost-of-living adjustment (COLA), on the other hand, is calculated based on increases in the cost of living, as measured by the Consumer Price Index, the Social Security Administration (SSA) says. This year that’s a 3.2% increase.

But you shouldn’t ever see your Social Security benefits decrease because of the annual raise to Part B premiums.

If the COLA increase to a person’s monthly Social Security benefit is less than the increase to the monthly Part B premium, the premium increase will be reduced by however much it takes so that a person doesn’t see a decrease in their net monthly Social Security payment, the CMS notice and U.S. code says.

The 2024 COLA will make it so that Social Security beneficiaries will receive an average monthly payment increase of more than $50 next year, the SSA says. Since Part B’s standard monthly premium is increasing by $9.80, most Social Security beneficiaries on Medicare will have to pay the full increase in Plan B’s premium.

But Medicare Part B premium costs don’t always increase by a greater percentage than Social Security benefits. For example, 2023’s monthly premium was $5.20 less than 2022’s premium, CMS said last year.