How Inflation Could Affect Medicare Premiums in 2025

Medicare’s base premium doesn’t vary by age, health status or location. About three-quarters of Part B beneficiaries pay the base premium, Pierce says.

The rest either don’t pay it because they get coverage through the Qualified Medicare Beneficiary program, a Medicare Savings Program for enrollees with low incomes, or Medicaid. Or they pay more because they’re subject to a high-income surcharge.

When does the COLA affect Part B premiums?

When the COLA isn’t large enough to cover a Part B premium increase, the payment is reduced. This so-called hold-harmless provision ensures that beneficiaries don’t receive less in Social Security benefits than in the previous year, Pierce says.

Medicare premiums are a fixed amount. The COLA is a percentage of Social Security benefits, so it varies based on the size of a recipient’s check.

People on the low end of the benefits spectrum may not receive enough to totally pay for a Part B premium increase. But the percentage increase will cover others with larger Social Security checks.

A small number of Medicare beneficiaries have benefited from the hold-harmless provision every year since 1988, CMS says. In 2024, fewer than 1 percent of people with Medicare Part B pay less than the full Part B standard monthly premium. Part B premiums increased from $164.90 in 2023 to $174.70 in 2024; the Social Security COLA was 3.2 percent.

In years when the cost-of-living allowance is low but the Part B premium increase is high, the hold-harmless provision affects more people. When the COLA was zero in 2016, the hold-harmless rule protected about 70 percent of Medicare beneficiaries.

The 30 percent not affected included:

• People whose Medicare premiums are not deducted from Social Security benefits.
• New Medicare and Social Security enrollees.
• Beneficiaries subject to the high-income surcharge.
• Low-income beneficiaries whose Medicare premiums are paid by Medicaid.

If the COLA increases by 2.5 percent and Part B premiums increase by about 5 percent to $185 as estimated in the trustees’ report, the hold-harmless provision shouldn’t affect many beneficiaries, according to Pierce.

Does inflation affect Medicare’s high-income surcharge?

People whose income is higher than a set amount must pay extra for their Part B and Part D premiums, called the income-related monthly adjustment amount (IRMAA). This high-income surcharge was first assessed in 2007.

In 2024, the surcharge applies to single tax filers whose modified adjusted gross income is more than $103,000 or joint filers with incomes more than $206,000. Instead of the standard $174.70 premium, they pay from $244.60 to $594.00 a month for Part B this year. They also must pay $12.90 to $81 extra for Part D if they bought prescription drug coverage.

IRMAA has five tiers based on income. People subject to IRMAA pay 35 percent to 85 percent of projected Part B costs rather than the standard premium based on 25 percent of projected Part B costs.

The income levels used to determine the surcharge tiers are adjusted each year based on a slightly different inflation figure than the COLA — the change in the consumer price index for urban consumers (CPI-U) for the 12 months ending in August compared with the previous time frame.

If your income makes you eligible for a surcharge, the Social Security Administration sends a notice in the fall. The calculation is based on your modified adjusted gross income — your income minus deductions plus a few deductions that you have to add back.

The premiums that high earners are paying in 2024 are computed from the most recent tax return on file, typically a two-year lag. If your income has dropped because of certain life-changing events in the interim, such as retirement, death of a spouse or divorce, you may get your surcharge reduced.