For seven in 10 Medicare beneficiaries 2016 will be much like 2015. They will pay $104.90 per month for their Medicare Part B premium just as they did in 2015.
But 2016 might not be anything like 2015 for some 30% of Medicare beneficiaries — roughly 7 million or so Americans. That’s because premiums for individuals could increase a jaw-dropping 52% to $159.30 per month ($318.60 for married couples). And for individuals whose incomes exceed certain thresholds, premiums could rise to anywhere from $223.00 per month up to $509.80 (or $446 to $1,019.60 for married couples), depending on their incomes.
What gives? Blame the “hold harmless” provision in the law that addresses cost-of-living adjustments (COLA) for Social Security benefits.
That law limits the dollar increase in the premium to the dollar increase in an individual’s Social Security benefit, according to a report by Alicia Munnell of the Center for Retirement Research at Boston College.
At the moment, the consumer price index (CPI) is not expected to increase in the period used to determine the COLA for 2016.
And that means it’s very likely that Social Security recipients — for just the third time since automatic adjustments were adopted in 1975 — will not receive an increase in their benefit next year, according to Munnell’s report.
No COLA means no increase in Medicare Part B premiums. Or at least that's the case for 70% of Medicare beneficiaries who are collecting Social Security and don’t pay an income-related higher Medicare Part B premium, says Mark Lumia, founder and CEO of True Wealth Group in Lady Lake, Fla., and author of Thinking Outside the Money Box.
As for the remaining 30% of beneficiaries, they have to cover the difference. “Under current law, Part B premiums for other beneficiaries must be raised enough to offset premiums forgone due to the hold harmless provision,” says Lumia.
Medicare Part B covers services such as lab tests, surgeries and doctor visits, and supplies such as wheelchairs and walkers that are considered medically necessary.
Who must pay the higher Medicare Part B premium? This group includes individuals who enroll in Part B for the first time in 2016; enrollees who do not receive a Social Security benefit; beneficiaries who are directly billed for their Part B premium; current enrollees who pay an income-related higher premium; and dual Medicare-Medicaid beneficiaries, whose full premiums are paid by state Medicaid programs, according to this year’s Medicare Trustee’s report.
What might you do or consider if you’re among those who have to pay the higher “not held harmless” Medicare Part B premium?
Individuals who enroll in Part B for the first time in 2016. “Enroll earlier if you’re already 65 and otherwise eligible,” says Michael Kitces, publisher of The Kitces Report and author of the Nerd's Eye View blog. “If you’re not eligible now, I’m afraid you’re stuck.”
Enrollees who do not receive a Social Security benefit. Those who are already on Medicare now, or could apply immediately, and who were going to start Social Security benefits in the next year or so might consider applying right now instead, Kitces says.
“Those who file in the coming weeks should be able to get both Social Security benefits and Medicare in November and December, which are the two months used for measuring, and therefore make themselves eligible,” he says.
If you are among those who are currently considering different Social Security claiming strategies — such as file-and-suspend, restricted application and delay to age 70 — there’s no getting around it. You’ll have to do cost-benefit analysis to determine if the benefit of the strategy is greater than the cost of the increased Medicare Part B premium.
In the long run, though, Kitces says those who anticipate living a long time and who will benefit from delaying Social Security by several years should still delay. “The value of delaying Social Security is far more beneficial than the squeeze from hold harmless,” he says. Read Social Security And Medicare Claiming Strategies To Navigate The Looming 52% Medicare Part B Premium Spike and How The Medicare “Hold Harmless” Rules May Spike Part B Premiums By 52% In 2016.
Beneficiaries who are directly billed for their Part B premium. If you’re already getting Social Security benefits, request to have your Part B premium deducted from your Social Security check ASAP, and you should still have time to be eligible for hold harmless, says Kitces.
Current enrollees who pay an income-related higher premium. “It is critically important for folks to review the Social Security notice of 2016 Medicare B premiums that will be in mailboxes later this fall,” says Katy Votava, president of Goodcare.com in Rochester, N.Y. “It's not uncommon for people to qualify for a decrease because their income drops to a lower bracket as a result of specific life changing events.” The problem, says Votava, is that Social Security doesn't know about those life changing events unless the person notifies the agency.
For those whose incomes are still above the thresholds: “Unfortunately you’re stuck here,” says Kitces. The Income-Related Medicare Adjustment Amount (IRMAA) was already locked in based on 2014 income. “If possible, get your 2015 income below the line, so that at least if hold harmless kicks in again ... you can benefit slightly from the second time it flows through,” says Kitces.
Dual Medicare-Medicaid beneficiaries, whose full premiums are paid by state Medicaid programs. “Since your Medicare premiums are being paid by the state at this point, it doesn’t effectively matter whether hold harmless applies for you or not, as to the extent higher premiums occur, they will be paid by the state anyway,” says Kitces. “Not surprisingly, I believe there are some states who are not so happy about this.”
Back to normal. It’s also worth noting that in a few years, says Kitces, that when CPI presumably does increase again and Social Security benefits rise, the excess premiums on the 30% essentially unwind themselves.
“That’s why Medicare premiums dropped in 2013, after being up in 2011 and 2012 the last time this hold harmless scenario played out,” he says. “Which means, again, if you weren’t going to start Social Security and/or Medicare for several years anyway, this is a non-issue. It’s just those who would have started both, and soon, who may wish to accelerate claiming to try to get in under the wire.”
Robert Powell is editor of Retirement Weekly, contributes regularly to USA TODAY, The Wall Street Journal and MarketWatch. Got questions about money? Email Bob at firstname.lastname@example.org.