Many Americans count on every penny they get from Social Security to help them make ends meet in retirement. That makes it especially welcome when recipients get a bigger benefit check, as it seems to take away at least some of the pressure on budgets that most seniors face. Yet when those bigger checks turn out to be too good to be true, as happened recently, the fallout can be even tougher to handle.

Late last month, the Social Security Administration (SSA) discovered that it had made an error in how it coordinates with the Medicare program. The result was that Social Security recipients got checks that were bigger than they should've been. Now, the federal government is warning those on Social Security that some of them will see big bills from their Medicare providers, and that could put immense pressure on cash-strapped seniors to figure out how to cover the shortfall.

Two older people next to a picture of a Social Security card with the Washington $1 bill picture in it.

Image source: Getty Images.

How Social Security and Medicare are supposed to work together

Social Security and Medicare coordinate their two programs in several ways. Many retirees apply for Medicare and Social Security at the same time, and enrollment in Medicare is automatic for most of those who started receiving Social Security benefits before turning 65.

Medicare charges premiums for some of its services, and in general, if you're on Social Security, you can expect your Medicare premium to get deducted directly from your check. So, if you're entitled to $1,200 in monthly benefits and you have to pay a monthly premium to Medicare for $135.50, then you'll get a net Social Security payment of $1,064.50.

What went wrong

The problem that occurred at the beginning of 2019 affected hundreds of thousands of Social Security recipients. The SSA said that a processing error in January resulted in some participants in Medicare Advantage plans and Part D prescription drug plans not having their monthly premiums withheld from their Social Security benefits. Because of this, benefit checks were larger than they would've been if the proper withholding had been done. In addition, the private insurance companies that operate Medicare Advantage and Part D plans never received payment for the required premiums.

The SSA said that the plans themselves will send out bills for the unpaid premium amounts. It warned that because the problem went for five months without being detected, the first bill will be large, covering all the missed months of premium payments.

The Department of Health and Human Services (DHHS) weighed in on the problem as well, making it clear that participants have rights. Plans must offer their participants a grace period to repay the premium payments that were missed, with the length of the period being at least as long as whatever delay in billing there was.

The size of the problem

Going forward, DHHS said that plan premiums will start to be taken properly from Social Security checks beginning in June or July. That will result in a dramatic reduction in the size of monthly benefits for the roughly 250,000 participants affected by the mistake.

However, the bigger concern is where retirees will find the money to cover the several months' worth of premiums that got missed. On one hand, it's true that the checks these retirees received in early 2019 were much larger than they would have gotten in the past. However, that doesn't mean that recipients were in a position to save the excess, especially with no explanation for where it came from or why they were getting it. Moreover, because Social Security payments routinely change in January due to cost-of-living adjustments, it's possible that many recipients simply chalked up the new amount to the typical annual change.

Why Social Security alone is not enough

As difficult as this situation is for those it affects, it's just the latest reason why those who are still in the workforce should do everything they can to build up a nest egg of retirement savings to go along with their Social Security benefits. Relying solely on monthly checks from the program can leave you in an untenable situation when mistakes like this happen. For those who've managed to set aside some additional savings, the consequences of the federal government's error won't be nearly as harsh as for those who rely solely on Social Security for their financial welfare.