This story corrects an earlier column, “3 Ways to Dodge Big Medicare Premiums Next Year,” which included inaccurate information.
Earlier this week, I wrote a piece for Money about 50% increases in Part B premiums that Medicare trustees projected would be levied next year on about 30% of Medicare users. My heart was in the right place but not my facts.
The story had some inexcusable gaffes. Thanks to Money readers who pointed them out. Apologies to all Money readers for receiving bad information, which led me to deliver some equally bad advice.
The gist of the piece is that the law requires Medicare to recover 25% of Part B expenses for covered doctor, outpatient and medical equipment expenses through Part B premiums. These expenses are rising, causing the trustees to project a fairly large hike in Part B premiums. Normally, all Medicare beneficiaries with Part B coverage would pay higher premiums.
This is not expected to be the case in 2016, however. That’s because most Part B premiums are paid out of people’s monthly payments from Social Security, and it has what’s called a “hold harmless” provision. According to this rule, Medicare beneficiaries who pay the lowest Part B premium this way—about 70% of all beneficiaries—can’t be required to pay premium increases next year that are larger than the amount of the annual cost-of-living adjustment (COLA) in their Social Security benefit that they receive.
This year there’s been little inflation. So, as the trustees said in their annual report on Medicare, there likely won’t be a Social Security COLA in 2016. Holding all those basic-premium payers harmless means they will continue to pay $104.90 a month for Part B in 2016—the same amount they are paying this year.
Still, Medicare has to recoup that 25% of Part B expenses somehow. It has no choice but to look to the other 30% of beneficiaries to pick up the entire tab for higher Part B premiums. This group includes seniors with higher incomes, those new to Medicare next year, and those who aren’t paying Part B through Social Security, mostly because they haven’t begun taking Social Security yet.
These beneficiaries thus could be saddled with premium hikes the trustees projected at 52%. Medicare officials say they will look for ways to soften the blow but the hikes are still expected to be substantial. This is how the trustees’ report breaks them down:
- For incomes below $85,000 ($170,000 if filing jointly)—Part B premiums would rise from $104.90 to $159.30. (This is what newcomers to Medicare and those who pay premiums directly will pay next year if they are in the lowest income bracket.)
- For incomes between $85,000 and $107,000 ($170,000 to $214,000 if filing jointly)—from $146.90 a month this year to $223.00.
- For incomes between $107,000 and $160,000 ($214,000 to $320,000 if filing jointly)—from $209.80 a month this year to $318.60.
- For incomes between $160,000 and $214,000 ($320,000 to $428,000 if filing jointly)—from $272.20 a month this year to $414.20.
- For incomes above $214.000 ($428,000 if filing jointly)—from $335.70 a month this year to $509.80.
The measure of income used to calculate these brackets is called Modified Adjusted Gross Income, or MAGI for short.
Up to this point, my reporting was accurate, but then I made two big mistakes:
I said higher-income taxpayers could try to soften the blow next year by taking steps to reduce their reported MAGI this year. This can’t happen because Social Security uses a two-year look-back period in determining the MAGI used to calculate Part B premiums—a key point that I forgot. So, premiums due next year in 2016 will be based on 2014 tax returns. Because of this, there is nothing anyone can do this year to change the income figure that will be used to determine their 2016 Part B premiums.
I also said people who pay their Medicare Part B premiums directly might be able to join the hold harmless club if they could figure out a way for their premiums to be deducted from their Social Security payments.
This is not true. There is no personal preference at work here. As a passage from the Social Security handbook explains, “Medicare Part B premiums must be deducted from Social Security benefits if the monthly benefit covers the deduction.” So, people do not have a choice. Once again, my advice was wrong. Strike two.
I avoided totally whiffing because my third piece of advice was correct: For those turning 65 and planning to sign up for Medicare next year, consider delaying enrollment. The initial enrollment period begins three months before you turn 65 and includes your birthday month, plus the three months following your birthday. Perhaps you can stay within this window while still pushing your enrollment date into 2017.
Or if you have the choice, you may be better off working another year. Even if they have reached 65, most people need not enroll in Medicare if they are still working and have group health insurance from their employer (the major exception is people who work for an employer with fewer than 20 employees).
It also remains true that avoiding a big Part B premium hike next year can pay off because these unusually high premiums will recede in future years, once Social Security starts paying COLAs again. As I wrote, there were no COLAs in 2010 and 2011, either, and the hold harmless provision raised the lowest Part B premium from $96.40 a month in 2009 to $110.50 in 2010 and $115.40 in 2011. With the reinstatement of a COLA in 2012, Medicare could spread the financial pain to everyone, and the premium dropped to $99.90 a month.
Again, apologies to Money readers for these mistakes. You deserve better.
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Philip Moeller is an expert on retirement, aging, and health. He is co-author of The New York Times bestseller, “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” and is working on a companion book about Medicare. Reach him at email@example.com or @PhilMoeller on Twitter.