“Growth in per-Medicare enrollee costs continues to be historically low even as the economy continues to rebound. While this is good news, we cannot be complacent as the number of Medicare beneficiaries continues to grow,” said Andy Slavitt, Acting Administrator of the Centers for Medicare & Medicaid Services (CMS). “That’s why we must continue to transform our health care system into one that delivers better care and spends our dollars in a smarter way for beneficiaries so Medicare can continue to meet the needs of our beneficiaries for the next 50 years and beyond."
While per-enrollee Medicare spending growth has been low, a looming concern is a potential 52% jump in the Medicare Part B premium impacting 2016 Medicare beneficiaries in any of the following groups:
* New enrollees who start Medicare Part B on or after 1/1/2016
* Enrollees who are billed directly for their Medicare Part B premium (i.e., monthly premium is NOT deducted from Social Security benefits)
* Enrollees who pay an income-related higher premium
Decisions about premium changes will be made in October, so the premium hike that would impact approximately 30% of Medicare beneficiaries is not final.
Why only 30% Of Medicare beneficiaries impacted, not everyone?
People who have claimed Social Security benefits and are on Medicare must, by law, have their Part B premiums withheld from their Social Security payments. Except for those paying an income-related higher premium, these Medicare beneficiaries are protected by a “hold harmless” provision mandating that their net Social Security benefits (gross monthly benefit less the Medicare Part B premium) cannot decline from one year to the next. Normally, this is not an issue because in most years Social Security benefits are increased with a yearly cost of living adjustment (COLA).
What happens when the COLA is zero, as currently is forecast for 2016? As noted above, Medicare beneficiaries having the standard Part B premium deducted from Social Security benefits cannot be required to pay any premium increases. Yet, Medicare costs are increasing; and by law Medicare must collect 25% of Part B expenses from beneficiaries in the form of monthly premiums. Since Medicare cannot increase premiums on the 70% of beneficiaries who are held harmless, in order to achieve the targeted 25% ratio it must collect more from those beneficiaries who are not held harmless.
The Medicare Trustees projected that Medicare beneficiaries not protected by the hold harmless provision would pay 52% more in Part B premiums next year. Those not held harmless include new enrollees to Medicare in 2016, people with modified adjusted gross incomes (MAGI) above $85,000 ($170,000 on joint tax returns) and those who haven’t yet begun receiving Social Security benefits. Beneficiaries with low-incomes who have their premiums paid by their state are also not held harmless, so state budgets also would be impacted next year.
For those not subjected to the income-related higher premium, the 2016 Medicare Part premium would be $159.30 (52% increase compared to $104.90 premium in 2015). Beneficiaries in the higher income premium groups would have similar percentage hikes, from a range of $146.90 to $335.70 a month in 2015 to a range of $223 to $509.80 in 2016.
Some Medicare beneficiaries could see an even higher percentage increase in 2016 Part B premium; for example a current enrollee who falls into a higher income premium group for the first time. Assuming the first tier of higher premium applies, and for the first time in 2016, the Medicare Part B premium would more than double in 2016 (from $104.90 in 2015 up to $223 in 2016).
Medicare officials say they will do what they can to reduce these increases while still honoring their funding obligations to support Medicare Part B expenses. In the meantime, the only strategy to avoid these increases is for beneficiaries paying their premiums directly to Social Security to sign up for Social Security before the end of 2015 and begin having their Part B premiums automatically deducted from their Social Security payments.
Some people who have been delaying Medicare Part B past age 65 due to presence of other health insurance coverage may be planning to enroll in Medicare Part B on 1/1/2016 due to retirement or other reasons. These folks might want to consider contacting Social Security to request that their Medicare Part B coverage be put into effect on 12/1/2015. Keep in mind that this strategy to avoid the premium increase would work only when Social Security benefits are being collected, and it may not be worthwhile to trigger Social Security benefits solely for purposes of avoiding a higher 2016 Part B premium.
What happens in the future when COLAs resume?
Let's assume that there is no COLA increase in 2016 on Social Security benefits. If in 2017 there is also no COLA increase to benefits, then people held harmless in 2016 would continue to be held harmless in 2017. But these "savings" are unlikely to continue for life.
Once Social Security COLAs resume, Medicare Part B premiums will trend towards "normal" benefits with consistent premiums for those not collecting and those collecting monthly Social Security benefits. Beneficiaries held harmless in 2016 would face premium increases when COLAs resume, and beneficiaries not held harmless might see a decrease. It seems probable that after a few years, all beneficiaries without any income-based premium surcharge will once again be paying the same Part B premium.
As a final note, the Medicare Trustees report projected the annual deductible for Medicare Part B also will increase by 52% (from $147 to $223). Beneficiaries on Original Medicare supplemented by either Medigap Plan C or Medigap Plan F would not be impacted, since these two Medigap plans pay the annual Part B deductible. Beneficiaries with Part C Medicare Advantage (MA) plans likely would not see a direct impact since MA health plans set their own deductibles, and most MA plans do not charge the enrollee any Part B deductible.
Until next time,
Andrew Herman
President
What happens when the COLA is zero, as currently is forecast for 2016? As noted above, Medicare beneficiaries having the standard Part B premium deducted from Social Security benefits cannot be required to pay any premium increases. Yet, Medicare costs are increasing; and by law Medicare must collect 25% of Part B expenses from beneficiaries in the form of monthly premiums. Since Medicare cannot increase premiums on the 70% of beneficiaries who are held harmless, in order to achieve the targeted 25% ratio it must collect more from those beneficiaries who are not held harmless.
The Medicare Trustees projected that Medicare beneficiaries not protected by the hold harmless provision would pay 52% more in Part B premiums next year. Those not held harmless include new enrollees to Medicare in 2016, people with modified adjusted gross incomes (MAGI) above $85,000 ($170,000 on joint tax returns) and those who haven’t yet begun receiving Social Security benefits. Beneficiaries with low-incomes who have their premiums paid by their state are also not held harmless, so state budgets also would be impacted next year.
For those not subjected to the income-related higher premium, the 2016 Medicare Part premium would be $159.30 (52% increase compared to $104.90 premium in 2015). Beneficiaries in the higher income premium groups would have similar percentage hikes, from a range of $146.90 to $335.70 a month in 2015 to a range of $223 to $509.80 in 2016.
Some Medicare beneficiaries could see an even higher percentage increase in 2016 Part B premium; for example a current enrollee who falls into a higher income premium group for the first time. Assuming the first tier of higher premium applies, and for the first time in 2016, the Medicare Part B premium would more than double in 2016 (from $104.90 in 2015 up to $223 in 2016).
Medicare officials say they will do what they can to reduce these increases while still honoring their funding obligations to support Medicare Part B expenses. In the meantime, the only strategy to avoid these increases is for beneficiaries paying their premiums directly to Social Security to sign up for Social Security before the end of 2015 and begin having their Part B premiums automatically deducted from their Social Security payments.
Some people who have been delaying Medicare Part B past age 65 due to presence of other health insurance coverage may be planning to enroll in Medicare Part B on 1/1/2016 due to retirement or other reasons. These folks might want to consider contacting Social Security to request that their Medicare Part B coverage be put into effect on 12/1/2015. Keep in mind that this strategy to avoid the premium increase would work only when Social Security benefits are being collected, and it may not be worthwhile to trigger Social Security benefits solely for purposes of avoiding a higher 2016 Part B premium.
What happens in the future when COLAs resume?
Let's assume that there is no COLA increase in 2016 on Social Security benefits. If in 2017 there is also no COLA increase to benefits, then people held harmless in 2016 would continue to be held harmless in 2017. But these "savings" are unlikely to continue for life.
Once Social Security COLAs resume, Medicare Part B premiums will trend towards "normal" benefits with consistent premiums for those not collecting and those collecting monthly Social Security benefits. Beneficiaries held harmless in 2016 would face premium increases when COLAs resume, and beneficiaries not held harmless might see a decrease. It seems probable that after a few years, all beneficiaries without any income-based premium surcharge will once again be paying the same Part B premium.
As a final note, the Medicare Trustees report projected the annual deductible for Medicare Part B also will increase by 52% (from $147 to $223). Beneficiaries on Original Medicare supplemented by either Medigap Plan C or Medigap Plan F would not be impacted, since these two Medigap plans pay the annual Part B deductible. Beneficiaries with Part C Medicare Advantage (MA) plans likely would not see a direct impact since MA health plans set their own deductibles, and most MA plans do not charge the enrollee any Part B deductible.
Until next time,
Andrew Herman
President
