Due to the combination of little to no inflation in 2015 and the Social Security “hold harmless” provision, annual standard Part B premiums are projected to increase by more than $650 in 2016 for millions of Americans that choose to receive Medicare Part B benefits.
So, will your clients be part of the group paying as much as $652 more annually for their Part B premiums? They’ll probably want to know.
Here’s some simple background: Medicare is required to charge Part B premiums that generate enough revenue to cover 25 percent of its projected Part B expenses. When health care costs rise, so do Part B premiums.
What’s changing this year is the “hold harmless” provision will protect seniors from paying more for their Part B coverage unless they also receive an annual cost-of-living adjustment (COLA) in their Social Security benefit, which is very unlikely.
What you need to know is that “hold harmless” only applies to the 70 percent of Medicare beneficiaries who have their Medicare premium payments taken directly out of their monthly Social Security check and do not qualify as “higher income” by earning more than $85,000 per year.
Without a COLA increase, CMS will need to concentrate the burden of its cost increases onto the relatively small number, about 30 percent, of participants who don’t qualify to have limits on higher premiums. Hence, under the 2015 Medicare Trustees’ Report intermediate assumptions, this group will be saddled with an estimated monthly Part B premium in 2016 of $159.30, or 52 percent higher than the current 2015 level.
There are several groups of Medicare participants who don’t get the benefit of the hold-harmless provision and therefore, are subject to paying higher Part B premiums.
- Brand-new enrollees to the Medicare program for 2016.
- Individuals who have incomes that are higher than $85,000 per year ($170,000 for couples) already have to pay income-related monthly adjustments amount (IRMAA) surcharges on top of the standard Medicare Part B premium.
- Most controversially, those who choose to pay their Medicare Part B premiums directly instead of having them deducted from Social Security payments. This typically occurs among those Medicare recipients who have chosen to delay receiving Social Security retirement income benefits, and it’s a particularly arbitrary distinction that makes little policy sense.
So what’s the best way for your clients to avoid paying these increases, especially for those in higher-income households?
- Delay Medicare enrollment. For those turning 65 this year, review whether they can stay within the 7-month window while pushing your enrollment date until 2017. If they have the choice, it may be better to keep working another year to maintain creditable coverage.
- Reduce taxable income. If your clients can cut their income to move to a lower premium group, it may save them money. They should talk to their accountant about this.
- Pay Part B through Social Security. As noted, those who pay their Part B premiums directly are subject to paying higher premiums. If your clients aren’t already claiming Social Security benefits, it won’t make sense to begin just to claim higher Medicare premiums, but it might be worth looking into.
Source: Table V.E3. of the Medicare Trustees Report. (SEE PAGE 32 of Report)