2016 has the potential to become a disaster if our government does not act soon. Picture this: nearly one third of all Medicare beneficiaries will face a 50% – you read that right – increase in their Part B premiums in 2016. More than two thirds will have ZERO premium increase. That is, beneficiaries will have the same monthly premium in 2016, while others will see a $50 monthly increase. That's a big bite out of a fixed monthly income. Two expected results: more seniors will apply for Social Security benefits earlier than they had originally planned and state Medicaid programs will see bigger than usual bills.
As a direct result of complex relationships between Social Security and Medicare and a number of other issues, 2016 may be an expensive year for some seniors, according to Forbes' recent article, "Untangling the Medicare Premium Mess -- And What It Means For You." Medicare laws require it to increase premiums annually to cover increases in per capita costs. This would typically be about $16, which most seniors can manage.
Except that 2016 will not be a normal year. Most retirees have their Medicare premiums deducted from their Social Security benefits, but because inflation was so low this year, there won't be a cost-of-living increase in 2016 for Social Security. And the law says that if Social Security benefits don't rise—you guessed it—neither can the Medicare premiums. That's at least not for most people who get Social Security benefits.
That means about 70% of Medicare beneficiaries won't see the premium hike. However, that leaves the entire burden of this year's Medicare cost increases on the remaining 30%. Those guys are going to be hit with 50% premium hikes.
This list of those who are unprotected is a bit curious. It includes high income seniors, new enrollees, those enrolled in Medicare but not getting a Social Security check, and the so-called "dual eligibles" (who receive Medicare and Medicaid benefits; their premiums are paid by state Medicaid programs).
For high-income people, those premium hikes are hefty: for a single making more than $214,000, Part B premiums are will increase from $335.70 to $509.80. For some of these folks, it'd be cheaper to buy insurance through Affordable Care Act exchanges than to buy Part B plus Part D drug coverage and a Medigap policy. But they also might be better off with Medicare long term. It's complicated.
Seniors with more typical incomes also have some tough choices to make. For years, we've heard how the government and many financial experts encouraged seniors to wait to take their Social Security benefits for as long as they could. However, the special circumstances in 2016 may give some the exact opposite message, like those age 67, single, making less than $85,000, and enrolled in Medicare but not yet taking Social Security. The rule is that you must pay a large increase if your premiums are not being deducted from your Social Security check. If you claim Social Security now and start having premiums deducted, you can save more than $500 in Medicare premiums in 2016, and you start getting Social Security benefits.
But it's a trade-off, because you would also receive less in lifetime Social Security benefits. You'll need to do some math and the answer will depend on how much money you make, your best guess about how long you will live, and whether you're married. To learn more about long term planning, please visit our website.
Reference: Forbes (October 9, 2015) "Untangling the Medicare Premium Mess -- And What It Means For You"