Health care, already a major living expense for many retirees, may get even more costly in 2016. Some Medicare beneficiaries will see sharply higher premiums next year, but there may be a way to avoid it and save thousands of dollars.
The background for this situation is a twisted bureaucratic mess. We’ll try to unravel for you.
Currently, the standard Part B premium is $104.90 per month, with surcharges for those with higher incomes. It could be as much as $335.70 per month.
Note this rate is per person, so a retiree couple who are both on Medicare could pay as much as $671.40 per month in Part B premiums. That’s $8,056.80 annually – just for premiums, and not counting the untold thousands in Medicare taxes you likely paid over your career. There are also deductibles and copays if you actually use your benefits.
The Medicare system’s trustees said this year to expect a 52% increase in Part B (outpatient services) premiums. The Department of Health and Human Services will announce a final decision this fall. If the estimate is right, a high-income couple on Medicare could have to pay closer to $1,000 per month in Part B premiums.
However, most Medicare beneficiaries will probably see no increase in their Medicare premiums. How can this be?
The Social Security Act has a “hold harmless” provision. If Medicare premiums in a given year rise more than that year’s Social Security cost of living adjustment (COLA), the beneficiaries don’t have to pay the difference.
Because inflation is currently very low, it now looks like Social Security will have no COLA for 2016. That means Medicare premiums can’t go up. They will stay at $104.90 per month plus any income-based surcharges.
Is this good news? Maybe.
The “hold harmless” provision only applies if you have your Medicare premiums automatically deducted from your Social Security check each month. That will not be the case for everyone.
One example would be retirement-aged people who are using the popular “file and suspend” strategy to hold out for a higher benefit, but still pay for Medicare coverage. Some experts suggest un-suspending from Social Security for a short period in order to keep their Medicare premiums down.
This is also a problem for anyone who enrolls in Medicare for the first time in 2016. They will not have had any premiums deducted in 2015. Their choices will be to either pay the higher rates, or wait until 2017 to enroll. Waiting could leave them with no health coverage at all in 2016, unless they still have employer-based coverage.
These are tough decisions for individuals. They make no logical sense, either. The result for 2016 will be that most Medicare recipients will pay artificially low premiums while a smaller group pay sharply higher premiums than people the same age or older.
Unfortunately, we can’t change the law. We must work with what we have. If you will turn 65 in 2016 or you are using the “file and suspend” strategy, we suggest you contact the Social Security and Medicare offices to get more information on how the COLA change may affect you.
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