If the government doesn’t act soon, nearly one-third of Medicare beneficiaries face a 50 percent increase in their Part B premiums for 2016, while more than two-thirds will pay no premium hike at all. Most beneficiaries will pay the same monthly premium next year as they paid this year–$104.90. But others making the same income will pay $159.30. And some high-income retires will pay as much as $509.80.
Even worse, the big premium increases could encourage many seniors to take Social Security benefits earlier than they otherwise would—a policy that would only increase the burden on the federal retirement system. The premium hikes would also stick state Medicaid programs with an enormous unanticipated bill.
What’s going on here?
The problem is largely the result of the complex links between the two big government retirement programs—Social Security and Medicare. It starts with Medicare: The law requires Medicare to boost premiums to cover increases in per-capita costs. That makes sense. And if 2016 were a normal year, premiums for most beneficiaries would rise from $104.90 to $120.70—a steep, but manageable, increase.
But 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 will be no cost-of-living increase in 2016 for Social Security. And the law says that if Social Security benefits don’t rise, neither can Medicare premiums—at least not for most people who get Social Security benefits.
That exempts about 70 percent of Medicare beneficiaries from the premium hike. But it means that the entire burden of this year’s Medicare cost increases must be borne by the remaining 30 percent. Thus, they get clobbered with 50 percent premium hikes. For a more technical explanation of what’s happening, here is a nice paper from the Center for Retirement Research at Boston College.
Who is unprotected? It is a curious list: High income seniors, new enrollees, those enrolled in Medicare but not getting a Social Security check, and so-called “dual eligibles” who get both Medicare and Medicaid benefits. Their premiums are paid by state Medicaid programs.
For high-income people, premium hikes are pretty stiff in dollar terms. For example, for a single making more than $214,000, Part B premiums are set to rise from $335.70 to $509.80. For some in that income range, it would be cheaper to buy insurance in the commercial market through Affordable Care Act exchanges than to buy Part B plus Part D drug coverage and a Medigap policy. Of course, in the long run, they might be better off with Medicare. It is complicated.
Other seniors with more typical incomes have tough new choices of their own. For years, the government and many financial experts have encouraged seniors to delay taking Social Security benefits for as long as possible. But the curious circumstance in 2016 sends just the opposite message, at least for some.
Imagine you are 67, single, making less than $85,000, and enrolled in Medicare but not yet taking Social Security. Remember, the rule is that you must pay the big increase if your premiums are not being deducted from your Social Security check. Simply by claiming Social Security now and having premiums deducted, you can save more than $500 in Medicare premiums next year. Plus, of course, you start getting Social Security benefits.
There is a trade-off, of course, since you may also receive less in lifetime Social Security benefits. You’ll have to do the math and the answer will depend on how much money you make, your best guess about how long you will live, and whether you are married. But as the GPS lady says, it may be time to recalculate.
Finally, there is the matter of those getting both Medicare and Medicaid, who are among the nation’s poorest and sickest. They are subject to the big premium hike too. But since state Medicaid programs pay their Medicare premiums, the bill will land in the lap of the states. The newsletter Modern Healthcare reports that the change could cost California alone $550 million next year.
Congress could fix this. But Congress doesn’t seem able to do anything at the moment. The Obama Administration is trying to figure what it can do on its own, but its legal authority may be limited. It is a mess and, given the way things work in Washington, it is unlikely to get fixed until late December, if at all.