A number of forces have converged to create a situation where some Social Security beneficiaries may experience substantial increases in their Medicare insurance premiums.
This past year, in part because of the lower price of gasoline, the measured change in the cost-of-living index (CPI) that is used to adjust Social Security benefits is negative. This means the following will not change next year:
a) Social Security retirement benefits;
b) The maximum taxable income on which Social Security benefits have to be paid;
c) Medicare insurance Part B premiums for the majority of Social Security beneficiaries who now pay $105/month and have their premiums deducted from their Social Security checks.
Because there is requirement that Medicare cover 25% of expenses from premiums, Medicare recipients who do not fall under the conditions described in (c) above will have to make up the difference to bring the revenues from premiums up to 25%. This means that these other Medicare recipients could experience substantial increases in their Part B premiums. While the numbers have not yet been released, these increases could be around 50%.
Unless there is a change in the law or the Obama administration finds a way around this problem, the following groups will be affected:
A) People who enroll in Medicare in 2016
B) People who pay premiums directly to Medicare. This will include people who have chosen to delay claiming their retirement benefits, but have signed up for Medicare.
C) People who pay higher-income Medicare premiums. These are individuals who have income (MAGI) over $85,000 or married couples with income over $170,000.
While these increases in premiums may last only one year, a new law passed this past spring will increase Medicare premiums in 2018 for higher-income individuals and families. At present, we can only forecast how much these premiums will increase. Projections from the Kaiser Family Foundation can be found here .
We do not recommend changing Social Security claiming strategies based on these possible premium changes. The purpose of this post is to provide an alert to those people who might be affected.