There's been much speculation over the last few months about increases in Medicare premiums-- and the speculation is finally fact. Medicare Part B premiums will rise a whopping 52% for millions of beneficiaries in 2016.
Let's go over why Part B premiums are being raised and who will be affected.
The reason for the rate hike
The cause for this premium increase comes down to the fact that the Social Security Administration will not make a cost-of-living adjustment (COLA) in 2016. A COLA is an adjustment to Social Security payouts based on the government's measure of inflation and the overall cost of living, hence its name. Premiums for Medicare Part B and Part D are tied to government-administered plans. The fact that Social Security will not increase for 2016 is significant in a number of ways, but in this case it triggers a safety net for almost 70% of Medicare beneficiaries.
Who will be affected?
These hikes in Medicare premiums will affect higher-income earners, in particular individuals earning more than $85,000 per year and couples earning more than $170,000 per year – roughly 30% of beneficiaries. The main reason people below this income level won't see premium hikes has to do with something called the"hold harmless" rule, which is a provision that prevents an increase in Medicare B premiums from exceeding the COLA in Social Security benefits and is designed to protect roughly 70% of beneficiaries from increases in Medicare B premiums. Because there is no established COLA increase for 2016, the hold harmless rule will prevent premium hikes for the protected 70% of Medicare beneficiaries while shifting increased costs over to the other 30% not protect by this provision.
People who are not protected under the hold harmless rule are high-income earners, new Medicare Part B enrollees, and those not paying for Part B through Social Security (they're not claiming any Social Security benefits yet). It should be noted that this "non-protected" group includes people who have filed and suspended their Social Security benefits.
Medicare Part B monthly premiums are estimated to increase by 52% for those not covered by the hold harmless rule. It's projected that most (roughly 83%) of Part D beneficiaries will see a premium hike of at least $10 a month if they stay with their current plan and in their current state of residence.
Keep in mind that new Part B enrollees for 2016 will see increased premiums, so if you're working and receiving health coverage through an employer, then it might be best not to enroll in Part B if you were planning to.
Making changes to your Social Security claiming strategies in order to avoid a higher Medicare premium will most likely hurt in the long run and would only make sense in a few select cases. Keep in mind that Medicare premiums are established for one year at a time and are not permanent. Your optimized Social Security strategy should withstand such headwinds for the long term.
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