Medicare may not get the same amount of attention as Social Security, but it could very well become the nation's most important social program for seniors within the next four decades.
According to estimates from the Urban Institute of the projected lifetime benefit payouts for Social Security and Medicare for a middle-wage earning male turning 65 years old, by the year 2055 this fictitious individual will net more in average lifetime benefits from Medicare ($501,000) than from Social Security ($496,000). This is in part due to the declining worker-to-beneficiary ratio of Social Security and the rising cost of medical procedures and brand-name therapeutics.
But, Medicare enrollees don't have to wait until 2055 to witness big changes in the Medicare program. In fact, new enrollees in the Medicare program in 2017 (i.e., seniors turning 65 years old) could be in for a big surprise -- and not the good kind.
Hold harmless protects many existing Medicare members
There are typically two categories of Medicare enrollees. There are those seniors who were enrolled in Medicare last year, and who have their Part B premiums -- the premium that covers outpatient services -- automatically deducted from their monthly Social Security benefit, and there's, essentially, everyone else. This latter group includes:
- New enrollees to Medicare
- Seniors who have yet to file for Social Security benefits (therefore no automatic monthly withdrawal to pay for Part B premiums).
- Seniors who are directly billed by Medicare for Part B premiums.
- Dual-eligible enrollees who have both Medicare and Medicaid, and Medicaid pays their premiums.
Seniors who were enrolled in Medicare previously and are receiving Social Security benefits make up about 70% of all enrollees. This large group of enrollees is protected from paying substantially higher Part B premiums in 2017 thanks to a provision known as "hold harmless."
As noted above, existing Medicare enrollees who are enrolled in Social Security have their premium payments for Part B automatically deducted. However, Part B premium inflation has far outstripped the cost-of-living adjustments (COLA) that Social Security recipients have been privy to in recent years. In fact, COLAs for Social Security recipients were 0% in 2009, 2010, and 2016, and it was announced just over a week ago that COLA for 2017 will rise by just 0.3%, the smallest increase on record. If Part B premiums were to soar, and Social Security benefits rose by a small amount, existing Medicare enrollees would see their benefit check eroded. This is where hold harmless comes into play.
Hold harmless ensures that Medicare Part B premiums for existing members don't rise by more than Social Security's annual COLA. While this means that existing Medicare enrollees could see a very nominal increase in their Part B premiums in 2017 on par with their Social Security COLA, it doesn't stop Medicare from facing a high level of drug- and physician service-based inflation and, in some way, passing it along.
New Medicare enrollees better be prepared to open their wallet
The bulk of Medicare's inflation becomes the responsibility of the remaining 30% of Medicare enrollees (the four groups mentioned above), which includes new members.
Whereas the grandfathered Medicare enrollees could see their Part B premiums rise by just 0.3% from $104.90 in 2017, Part B premiums are on track to rise for the remaining 30% of individuals by more than 20%. In 2016, the Part B premium for new enrollees was $121.80, a 15% increase from the prior-year, whereas they may be as high as $149 a month in 2017, according to the Medicare Board of Trustees annual report. In other words, new enrollees could wind up paying almost $500 a year more for Part B premiums than longtime Medicare members.
However, longtime and new Medicare members can share in the pangs of inflation, too. The Medicare Trustees have projected that the Part B deductible Medicare enrollees have to pay before their Medicare insurance begins covering claims could rise by more than 20% to $204 in 2017 from $166 in 2016. A small group of seniors could be insulated from this expected increase in the deductible. This includes Medicare members with Medigap plans C and F, as well as enrollees who have Medicaid or retiree health benefits from an employer. The remainder of Medicare enrollees could be on the hook for a higher Part B deductible in 2017.
We're also witnessing pretty substantial Part D (i.e., prescription drug plan) premium inflation in the upcoming year. According to the Kaiser Family Foundation, prescription drug plans are rising an average of 9% in 2017, based on the weighted average of 2016 plan enrollment. These are premium increases that new and longtime Medicare members will be facing in 2017.
What you can do
Undoubtedly, Medicare's rising costs can make seniors feel a bit helpless as their nest egg and monthly income are eroded over time. However, there are considerations to be made that could help control your out-of-pocket expenses.
One of the smartest moves all Medicare enrollees can make is to shop around. Within original Medicare, this means shopping around for the best Part D value for you. Keep in mind that the best value may not be the cheapest plan available. The best value for a Part D recipient is the plan that offers the medicines you regularly use at the best possible price. Shopping around on a yearly basis is critical, because private insurers contracted by Medicare can alter their coverage year-to-year.
Examining your choices also means considering Part C, or a Medicare Advantage plan. Medicare Advantage plans offer the same coverage you'd get with Part A (hospital coverage), Part B, and Part D under original Medicare, except it's packaged into one plan so you don't have to enroll in several separate plans. Medicare Advantage plans may also offer the option of adding regular dental, vision, and hearing checkups, which isn't an option with original Medicare. But, the most valid selling point of a Medicare Advantage plan could be the annual out-of-pocket limits with each plan. Original Medicare has no annual out-of-pocket limits, meaning a Medicare Advantage plan can help give seniors some peace of mind.
Being proactive and understanding the options available to you is your best defense as a new and longtime Medicare enrollee to minimize the out-of-pocket impact of rising costs.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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