30% of Medicare beneficiaries are likely to see a 52% increase in their Part B premiums.
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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