Medicare is a federal insurance program that pays for covered health care services of most individuals aged 65 and older and certain disabled persons. In 2015, the program is expected to cover about 55 million persons (46 million aged and 9 million disabled) at a total cost of $649 billion. Most individuals (or their spouses) aged 65 and older who have worked in covered employment and paid Medicare payroll taxes for 40 quarters receive premium-free Medicare Part A (Hospital Insurance). Those entitled to Medicare Part A have the option of enrolling in Medicare Part B, which provides coverage for physicians' services, outpatient hospital services, durable medical equipment, outpatient dialysis, and other medical services. Most beneficiaries (about 92%) with Part A also enroll in Part B. Beneficiaries who choose to receive coverage through a Medicare Advantage (MA) plan (Part C) must enroll in both Medicare Part A and Medicare Part B. Part D provides optional outpatient prescription drug coverage. Whereas Part A is financed primarily by payroll taxes paid by current workers, Part B is financed through a combination of beneficiary premiums and funds transferred from the General Fund of the U.S. Treasury. The Medicare Trustees estimate that in 2015, Part B spending will reach $281 billion. About $70 billion of that amount is expected to be paid for by beneficiary premiums, and most of the rest is expected to be paid from general revenues. In addition to premiums, Part B beneficiaries must pay other out-of-pocket costs when they use services. In 2015, the annual deductible for Part B services is $147. After the annual deductible is met, beneficiaries are responsible for coinsurance costs, which are generally 20% of Medicare-approved Part B expenses. Most Medicare beneficiaries have some coverage in addition to Medicare that helps to pay for deductibles and coinsurance. This additional coverage can include coverage through Medicaid, private insurance policies that supplement Medicare (Medigap), or retiree coverage through a former employer. By statute, Part B premiums, which are deducted automatically from Social Security checks for those who receive Social Security, must cover 25% of projected annual Part B per capita costs for aged beneficiaries. The Social Security Act (SSA) includes a provision that holds most Social Security and Railroad Retirement Board beneficiaries harmless for increases in their Medicare Part B premiums that exceed the dollar amount of the increase in their Social Security checks. Affected beneficiaries' Part B premiums are reduced to ensure that their Social Security benefit checks do not decline from one year to the next. In a typical year, this hold - harmless provision affects a small fraction of beneficiaries and has a limited impact on program finances. However, in a year in which Medicare Part B premiums increase but Social Security benefits do not, the effects of the hold-harmless provision are larger and more complex. This report provides an overview of Medicare Part B premiums, the relationship between the Social Security cost-of-living increase (COLA) and Part B premiums, and the potential impact of a projected 0% Social Security COLA in 2016 on Medicare premiums, based on recent projections by the Medicare Trustees. Most people who elect to participate in the Medicare Part B program pay the Part B premium. The standard Part B premium is a single national amount that does not vary with a beneficiary's age, health status, or place of residence. Premiums may be adjusted, however, for late enrollment and for beneficiaries with high incomes. In 2015, the standard Medicare Part B premium is $104.90 per month. Under normal circumstances, the standard premium is set to cover about 25% of the average per enrollee cost of Part B benefits. Therefore, changes in the Part B premium over time generally reflect the growth in total Part B expenditures. Part B costs not covered by premiums are paid for through transfers from the General Fund of the Treasury. In other words, Medicare beneficiaries receive a 75% subsidy for Part B—every $1 in Part B premiums (for aged enrollees) is matched by $3 in general revenues. All income for Part B is credited to the Part B account of the Supplementary Medical Insurance (SMI) Trust Fund. While both aged and disabled Medicare beneficiaries pay the same Part B premium, the statute provides that Part B premiums are to be based only on the expected program costs—that is, the monthly actuarial rate —for the aged (those 65 years of age and older). (The actuarial rate for the aged is defined as one-half of the expected average monthly per capita program costs for the aged.) The monthly actuarial rates for both aged and disabled enrollees, however, are used to determine the needed amount of matching general revenue funding. Each year, the Centers for Medicare & Medicaid Services (CMS) actuaries estimate total per capita Part B costs for beneficiaries aged 65 and older for the following year and set the Part B premium to cover 25% of these expected expenditures. Because prospective estimates may differ from actual spending for the year, contingency margin adjustments are made to ensure sufficient income to accommodate potential variation in actual expenditures during the year. Once the premium has been set for a given year, it will not be changed during that year. To determine the standard 2015 monthly Part B premium amount, CMS first estimated the monthly actuarial rate for enrollees aged 65 and older using actual per enrollee costs by type of service from program data through 2013 and projected costs for subsequent years. For 2015, CMS estimated that the monthly amount needed to cover one-half of the total benefit and administration costs for the aged would be $208.61. However, because of expected variations between projected and actual costs, a contingency adjustment of $3.41 was added to this amount. After a reduction of $2.22 to account for expected interest on trust fund assets, the monthly actuarial rate for the aged was determined to be $209.80. As premiums are based only on projections of expected costs of the aged, the 2015 Part B premium amount is one-half of $209.80, or $104.90 per month (25% of the monthly expected per capita costs of the aged). The contingency margin is the amount set aside to cover variation between actual and projected costs. In recent years, CMS has noted that Part B expenditures have been higher than expected under current law. In some cases, legislation that resulted in increased Medicare Part B expenditures for the year was enacted after the premium for the year had been set. For example, in calculating the premium for 2015, CMS recognized the possibility that Congress might override the scheduled physician payment reduction under the Sustainable Growth Rate formula of about 21.1% in physician fees beginning in April 2015 (thereby significantly increasing Part B expenses). As a result, CMS provided for the maintenance of a somewhat higher contingency margin than would otherwise be necessary in calculating the 2015 premium. Certain payments are excluded from the determination of the contingency margin, and additional revenues from a fee paid by manufacturers and importers of brand-name drugs reduce the needed contingency margin. The 2015 contingency margin adjustment of $3.41 reflects the expected net effects of all of these factors. The Medicare Modernization Act of 2003 (MMA; P.L. 108-173 ) required that high-income enrollees in Medicare Part B pay higher premiums beginning in 2007. In 2015, about 5.6% of Medicare beneficiaries pay these higher premiums. For high-income beneficiaries, adjustments are made to the standard Part B premiums, with the share of expenditures paid by beneficiaries increasing with income. This share ranges from 35% to 80% of the value of Part B coverage (as opposed to the standard 25%). High-income adjustments to Part B premiums are referred to as the income-related monthly adjustment amount (IRMAA). In 2015, individuals whose incomes exceed $85,000 and couples whose incomes exceed $170,000 are subject to higher premium amounts. Depending on their level of income, beneficiaries may be classified into one of five income categories. (See Table 1 .) To determine who is subject to the high-income premium, the Social Security Administration uses an individual's most recent federal tax return, provided by the Internal Revenue Service. In general, the taxable year used in determining the premium is the second calendar year preceding the applicable year. For example, the 2014 tax return (with 2013 income) was used to determine who would pay the 2015 high-income premiums. The income definition on which these premiums are based is modified adjusted gross income (MAGI). If a person had a one-time increase in taxable income in a particular year, such as from the sale of property, that increase would be considered in determining the individual's total income for that year and thus his or her liability for the income-related premium two years ahead. This one-time increase would not be considered in the calculations for future years. In the case of certain major life-changing events that result in a significant reduction in MAGI, an individual may request to have the income determination made for a more recent year than the second preceding year. These major events include death of a spouse; marriage; divorce; partial or full work stoppage for the individual or spouse; loss by the individual or spouse of income from income-producing property when the loss is not at the individual's direction (such as in the case of a natural disaster); or reduction or loss for the individual or spouse of pension income due to termination or reorganization of the pension plan. Certain types of events, such as investment losses or events that affect expenses but not income, are not considered major life-changing events. Medicare beneficiaries who have limited income and assets may qualify for assistance with their Part B premiums from state Medicaid programs. About one in five Medicare beneficiaries is eligible to receive this assistance; these beneficiaries are commonly referred to as dual-eligibles . Medicare beneficiaries who qualify for full Medicaid benefits ( full dual-eligibles ) have most of their health care expenses paid for by either Medicare or Medicaid.