The Senate voted early Friday morning to approve a two-year budget deal intended to spook years of gridlock and frequent scares of government shutdowns.
President Barack Obama is expected to sign the agreement [pumpkin] patched by the White House and congressional leaders.
The Bipartisan Budget Act of 2015 extends the nation's debt limit through 2017 and mummifies spending levels through September of that year to keep things under wraps. It also lifts the spirits of ghostly spending caps set in place in 2011, providing for $80 billion in sequester relief.
The agreement includes long-term entitlement comebacks to the Social Security Disability Insurance (SSDI) program — the first major boo-merang to Social Security since 1983 — and frightens a spike in Medicare B premiums for millions of seniors.
Once signed, 15 million older Americans will face a Part B premium increase of roughly 17 percent opposed to the projected 52 percent, easing pain in the neck for beneficiaries.
It's all grave-y for “held harmless” Medicare beneficiaries, as they will not see an increase in their Medicare Part B premiums due to a provision of federal law that draws blood for premiums from Social Security benefits.
The Part B deductible, which covers costs if Medicare beneficiaries are coffin and need to see a doctor, will rise to $167 rather than the $223 proposed.
To cover the cost of moderating the Medicare Part B premium increase, the U.S. Treasury will lend money to the Medicare blood bank.
To repay the loan, beneficiaries will pay a premium surcharge of three bones each month over about five years until 2021.
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Sources: www.nbcnews.com, www.washingtonpost.com
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In hopes of a TKO in projected Medicare Part B premium increases for the coming year, congressional leaders and the White House have wrapped up their hands, thrown on their gloves, and forged a tentative budget agreement to go toe-to-toe with the pressing issue.
Under current law nearly 15 million Medicare beneficiaries, who do not collect Social Security and will be enrolling in Medicare’s Part B next year for the first time, either have incomes great enough that they are charged higher premiums, or are poor enough that they also qualify for Medicaid, are about to be sucker punched with an increase of more than 50 percent in their standard monthly Medicare Part B premiums.
If Congress throws in the towel at the main event and agrees on the tentative budget agreement, those 15 million older Americans will face a Part B premium increase of roughly 17 percent opposed to the projected 52 percent.
“Held harmless” Medicare beneficiaries will not see an increase in their Medicare Part B premiums due to a provision of federal law that links premiums to Social Security benefits.
Also, the Part B deductible, which affects all Medicare beneficiaries, will rise to $167 rather than the $223 proposed.
To cover the cost of moderating the Medicare Part B premium increase, the U.S. Treasury will lend money to the Medicare trust fund.
To repay the loan beneficiaries will pay a $3 premium surcharge each month over about five years until 2021.
On Tuesday AARP praised the agreement and urged Congress to adopt it rather than face the brawl.
We'll keep you up-to-date with coverage on Congress’s response to the open invitation.
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 email@example.com.
16.5 million Medicare enrollees are facing premium increases of more than 50%.
Should 30% of Medicare beneficiaries shoulder a 52% premium hike next year while the other 70% pay no more at all? Advocates for seniors do not think so, and they are making a push to convince Congress to stop it from happening.
The Medicare population vulnerable to shouldering the larger premium includes some federal and state government employees, people who sign up for Medicare for the first time next year, low-income seniors whose premiums are paid by state Medicaid plans and high-income seniors who already pay premium surcharges.
For these 16.5 million enrollees facing the stiff increase, monthly premiums would rise to $159.30 from $104.90, according to the recent annual report of the Medicare trustees.
Meanwhile, 36 million Medicare Part B enrollees would have their premiums hold steady at $104.90 because increases are tied to Social Security cost-of-living adjustments as part of a “hold harmless provision” in the Social Security Act. Because no COLA is expected next year due to extraordinarily low inflation this year, the Part B premium will stay flat.
Some costs will go up for almost everyone, however, as trustees forecast a big increase in the Medicare Part B deductible, to $223 from $147, with the exception of those who have first-dollar Medigap supplemental policies and Medicare Advantage plan enrollees.
What Can Be Done
Advocates for the 30% are swinging into action, trying to convince Congress to pass a one-time fix that would hold off on cost of living increases for everyone. Legislation that extended the hold harmless provision to those not covered by it passed the House of Representatives when a similar situation occurred in 2009, but never received a vote in the Senate.
This time, the fix is being pushed by a broad coalition of advocates and organizations representing federal and state government workers. No official figures are available, but a back-of-the-envelope calculation suggests a fix would cost the federal government $10 billion.
“It’s not an ideal situation from anyone’s perspective,” says Juliette Cubanski, associate director of the Program on Medicare Policy at the Kaiser Family Foundation. “People on Social Security would much rather have a COLA, and the Medicare actuaries would much rather spread around the cost increases evenly.”
The 2016 premiums are not locked in until October, so there is still time to change course. The Part B premium is based on the program’s estimate of how much they need to run the program, plus a cushion for unexpected costs, Cubanski explains. “Medicare could opt for a smaller reserve, which could bring the premium down a bit.”
Politicians are not likely to ride to the rescue of well-off seniors, who will bear some of this expected price increase. But half of Medicare beneficiaries have an income of $24,000 or less, according to Kaiser. Price increases will hit them hardest.
Among the middle-income seniors likely to be affected are federal retirees covered by the Civil Service Retirement System – the government’s legacy defined benefit pension system.
These retirees did not participate in Social Security during their time in the federal workforce (federal workers hired since 1987 have participated in the newer defined benefit Federal Employees Retirement System, and they receive Social Security.)
This also applies to state government employees, most of whom participate in defined-benefit pension plans and are not covered by Social Security during their tenure as state employees.
Another big area of worry: low-income “dual-eligible” seniors who receive Social Security and also participate in both Medicare and state-run Medicaid programs.
Although this group is not covered by the “hold harmless” provision, states pick up the tab for the higher cost, putting additional pressure on already-stressed state Medicaid budgets.
“We’re very concerned about state Medicaid budgets, and how they would handle the increase,” says Andrew Scholnick, senior legislative representative at AARP.
Although Congress has a busy fall schedule, lawmakers are showing interest in taking action to mitigate the impact. “I think it’s is going to come to the forefront a bit more now,” says Scholnick.
But he doubts Congress will act before October, leaving the door open to a last minute fix before year-end.