One out of three seniors may pay 50% more in Medicare Part B costs in 2016.
You may be one of the unlucky older Americans paying sharply higher Medicare costs next year. Part B Medicare premiums are projected to rise by as much as 52% in 2016, but only for 30% of the program’s beneficiaries, according to the program’s annual trustees report. The remaining 70% will see no premium increase at all.
It’s possible that federal officials will find ways to reduce the price hikes. Next year’s premium rates will be made final later in October. Still, a significant increase has to be expected.
Those most likely to pay higher premiums are seniors with modified adjusted grow incomes (MAGI) above $85,000 ($170,000 for couples), those new to Medicare next year, and those who aren’t paying Part B through Social Security, mostly because they haven’t claimed benefits yet. If you’re in one of those groups, take steps before the end of this year, if you can, to minimize the impact. More about this in moment.
First, some background. Medicare Part B is the portion of the program that covers doctor’s visits and other outpatient expenses. This year the premium charge is $104.90 a month for most beneficiaries. People with higher earnings are dinged for steeper premiums that can be as much as $335.70 a month.
Under Medicare rules, the program is required to charge Part B premiums that bring in enough revenue to cover 25% of its Part B expenses. So when health care costs increase, as they have lately, so too do premiums. Typically all Medicare beneficiaries share those costs in the form of higher premiums—but next year, only some will pay the price.
Why the big discrepancy in premium costs? It’s because most Part B premiums are paid out of people’s monthly checks from Social Security, which has what’s called a “hold harmless” provision. According to this rule, Medicare beneficiaries who pay the lowest Part B premium can’t be required to pay more for coverage if they don’t receive an annual cost-of-living adjustment (COLA) in their Social Security benefit.
Well, if you haven’t already noticed, there’s been little inflation this past year, and odds are, there won’t be a Social Security COLA in 2016. That would mean roughly 70% of Medicare beneficiaries will be held harmless, and they will continue to pay $104.90 a month for Part B in 2016.
Still, Medicare has to recoup that 25% of Part B expenses somehow. So the remaining 30% of beneficiaries will be saddled with those projected 52% premium hikes. This is how the trustees report shows the impact for different MAGI levels:
- New Medicare beneficiaries with incomes below $85,000 ($170,000 if filing jointly) will pay from from $104.90 to $159.30.
- For incomes between $85,000 and $107,000 ($170,000 to $214,000 if filing jointly) – from $146.90 a month this year to $223.00.
- For incomes between $107,000 and $160,000 ($214,000 to $320,000 if filing jointly) – from $209.80 a month this year to $318.60.
- For incomes between $160,000 and $214,000 ($320,000 to $428,000 if filing jointly) – from $272.20 a month this year to $414.20.
- For incomes above $214.000 ($428,000 if filing jointly) – from $335.70 a month this year to $509.80.
There’s no simple way to avoid these increases, especially for higher-income households. But here are three moves that may help:
*Reduce your taxable income. Look at the income brackets for Part B premiums. Can you cut your income this year by enough to move to a lower premium group? Perhaps you can take some taxable losses or make a sizable charitable donation. Talk to your accountant about this.
*Delay Medicare enrollment. For those turning 65 and planning to sign up for Medicare next year, review your options. The initial enrollment period begins three months before you turn 65 and includes your birthday month, plus the three months following your birthday. Can you stay within this window while still pushing your enrollment date into 2017? Or perhaps, if you have the choice, you may be better off working another year.
*Pay Part B through Social Security. Do you have any options during the remainder of this year to begin having your Part B premiums paid out of your Social Security payments? For people not already receiving Social Security, in most cases it won’t make sense to begin claiming just to avoid higher Medicare premiums. The increase in benefits from deferring will likely outweigh the short-term cost. Still, a small number of people who do get Social Security prefer to pay their Part B premiums separately instead of having them taken out of their benefit checks. If you’re one of them, perhaps you can join that 70% and be held harmless yourself.
Avoiding a big Part B premium hike next year would pay off because these unusually high premiums will recede in future years, once Social Security starts paying COLAs again. There were no COLAs in 2010 and 2011, either, and the hold harmless provision raised the lowest Part B premium from $96.40 a month in 2009 to $110.50 in 2010 and $115.40 in 2011. But the return of a COLA in 2012 allowed Medicare to once again spread the financial pain to everyone, and the premium dropped to $99.90 a month.
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Philip Moeller is an expert on retirement, aging, and health. He is co-author of The New York Times bestseller, “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” and is working on a companion book about Medicare. Reach him at email@example.com or @PhilMoeller on Twitter.