By Michael Egan, CFP®
CERTIFIED FINANCIAL PLANNER™
Partner, Egan, Berger & Weiner, LLC
While we were enjoying our summer vacations, the trustees of Medicare released their annual report on the Status Of The Social Security And Medicare Programs.
Here’s what they decided:
1. The hospital fund (Part A) is expected to be funded until 2030, which is the same as last year.
- After 2030, there is expected to be enough tax revenue coming in to cover 79 percent to 86 percent of ongoing expenses.
- There will eventually need to be some kind of reform to keep the system funded at the current levels, but nothing seems imminent at this time.
2. Be aware that Part B (the doctor bills) premiums are expected to rise — dramatically.
- Unlike Part A, which is paid for with payroll taxes, Part B is a cost-sharing program paid for by the beneficiaries who are using it and with the general revenues of the US Treasury.
- According to the trustees’ report, Part B premiums are expected to increase by more than 50 percent!
3. Don’t have a heart attack — 70 percent of the beneficiaries are not expected to experience any increase at all. Why not?
- The hold-harmless provision within Medicare states that existing beneficiaries who are paying for Part B out of their Social Security checks and who make less than $85,000 a year (for singles) or $170,000 a year (for married couples) cannot have an increase in their Part B premiums that would exceed the increase in their Social Security check.
- At this time, Social Security is projecting the possibility of no inflation and therefore no increase in Social Security benefits in 2016.
- We won’t know for sure until October what the final number is. If they are correct, there would be no increase in Part B costs for 70 percent of the beneficiaries who are covered by the hold-harmless provision. This means that the entire increased cost has to be shouldered by the remaining 30 percent of the beneficiaries.
Are you among the 30 percent whose Part B premiums will go up next year? Let’s find out.
The 30 percent is made up of the following groups:
- People filing for Part B benefits for the first time in 2016.
- People currently under Part B, but who are not paying for it through their Social Security check (for example, those beneficiaries who are delaying Social Security benefits until 70 in order to receive a higher amount later).
- People currently under Part B with higher incomes (single individuals with a Modified Adjusted Gross Income [MAGI] greater than $85,000; married couples with a MAGI greater than $170,000). See chart below.
As you can see in the above chart, if you are not one of the 70 percent covered by the hold-harmless provision, your premiums may increase anywhere from $600 to $2,000 in 2016 over what you are paying this year. Double that if you’re a married couple.
From our point of view, the only way that this will change is if the president or Congress does something to stop this or minimize it. Since 2016 is an election year, there may be a chance.
To B or Not to B, That Is the Question
Given that Part B premiums are likely to increase, especially for those in higher-income brackets, the real question is whether you should have it if you don’t have to.
Many of our clients are federal employees with federal health coverage in retirement. When Medicare Part B was only about $100/month, many of them chose to add it to their government health plan benefits in retirement. This ended up minimizing their out of pocket health care costs.
But now that this expense could potentially be three to five times what it used to be, they should probably re-examine that decision.
The Bottom Line
We should all be expecting increases in the cost of Medicare over time.
Still, it is important to note that when there is a cost-of-living adjustment with Social Security, the rate increase for the 30 percent should be reduced because everybody will be sharing in the cost.
Is it possible that real Social Security cost-of-living adjustments may be a thing of the past because the increase will be eaten up by increases in the cost of Medicare? Only time will tell.