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Ask the Expert Retirement illustration
Robert A. Di Ieso, Jr.

Q: I read your informative article on the increased Medicare Part B premium hike that may occur next year, but for only certain groups of Medicare enrollees, mainly those not paying the cost out of Social Security. Of course it seems inherently unfair to charge an individual like myself who has decided to delay Social Security for a higher benefit at age 70 and pay my Medicare out of pocket till then.

My question is can I avoid this increase by taking my Social Security this year and have my Medicare deducted from my benefit, and then next year suspend or withdraw my retirement and start again paying Medicare out of my pocket? When I suspend or withdraw my retirement will I continue to pay the same Medicare benefit as I paid while receiving Social Security, or will my Medicare premium increase because I again would be paying out of pocket?

My birthday is in November and I’ll turn 67 so I would just take the Social Security benefit till early 2016. Your help in answering this question will assist me in deciding to apply for benefits before November. Thanks. –Mike

A: Mike asked the most intriguing question I received on that article, but lots of readers chimed in following the recent disclosure that Medicare Part B premiums are projected to rise for some people by more than 50% next year. The projections were contained in the Medicare trustees’ recent annual report.

And, as it turns out, Mike’s questions involve detailed Social Security rules that can have broader implications for many filers.

The "Hold-Harmless" Rule

First, though, let's recap the news about next year’s Part B premiums, which cover doctors, outpatient expenses and other services. The rules say that these premiums must be deducted from Social Security payments if someone is receiving Social Security and Medicare. Since those costs are expected to rise more next year than they have in recent years, Medicare must boost premiums that it will begin collecting next January.

However, overall inflation this year is expected to be low. Current levels of inflation determine whether Social Security beneficiaries will receive a cost of living adjustment (COLA) in 2016. The way it looks now, the trustees said, there likely will be no COLA at all.

When this happens, Social Security’s “hold harmless” provision kicks in. This rule says that no existing Social Security beneficiary paying the basic Part B premium ($104.90 this year) can be forced to receive a smaller Social Security benefit in one year than they did the previous year. These folks, roughly 70% of beneficiaries, would therefore continue paying $104.90 a month next year in Part B premiums.

Yet Medicare must raise about 25% of total Part B expenses from its recipients. So the program will have no choice but to collect all of this required revenue from the remaining beneficiaries, who will not be held harmless.

This group includes new Social Security beneficiaries, existing beneficiaries who have modified adjusted gross incomes above $85,000 ($170,000 if filing joint tax returns), and those who pay their Part B premiums directly to Medicare instead of having them withheld from their monthly Social Security payments. This last group represents people on Medicare such as Mike who have not yet begun receiving Social Security.

Medicare officials have said they will work to reduce the projected 52% hikes in Part B premiums faced by these three groups. But if the Social Security COLA does come in at zero when it is announced in October, the hold-harmless provision will trigger a big increase in Part B premiums for this sizable minority of Medicare recipients.

Suspend and Avoid

To return to Mike's question, there's some good news. Dorothy Clark, a spokeswoman for Social Security, says it looks like he can, indeed, avoid getting dinged with a big Part B increase by suspending benefits. She said there are four conditions that must be satisfied (the bold words are hers):

Mike’s November Social Security payment is lagged a month, meaning he won’t receive it until December. When he does, his Medicare Part B premium for December will be deducted from that initial Social Security payment. By beginning Part B deductions before the end of 2015, Mike will qualify to be held harmless in 2016.

So far, so good. But can Mike then suspend or withdraw his Social Security payment in 2016, and resume paying his Part B premiums to Medicare at the same hold-harmless rate he was paying in 2015?

Short-Term Gain

We have a split decision here. Ms. Clark said he absolutely can suspend his benefits in 2016 and continue to be held harmless. However, he cannot withdraw his benefits and receive this treatment. The reason is that suspending benefits maintains a person’s eligibility to receive them, while withdrawing from Social Security ends it. Without that eligibility, there is no basis for the person to be held harmless.

(Not to get too detailed, but if Mike withdrew his benefits, he would need to repay any payments from Social Security, and he would effectively get a do-over, meaning he would be regarded as never having filed for Social Security benefits at all. And when Ms. Clark uses the word “eligibility” she means Mike has currently filed to receive benefits. If he were not receiving benefits but was qualified to file for them, he would be considered “entitled” for benefits.)

To summarize, Mike can file for Social Security in time to receive his November payment in December, qualifying him to be held harmless against any Part B premium increase in 2016. He then can suspend his Social Security early in 2016 and continue to be held harmless in 2016. While his Social Security benefits are suspended, they will qualify for delayed retirement credits, permitting them to rise in value at the rate of 8% a year.

Mike will need to go to a lot of trouble to be held harmless, however, and the savings may be short-term. Even if Part B premiums do rise for the unlucky minority, they are likely to be rolled back once Social Security starts paying COLAs again. Back in 2010 and 2011, there were no COLAs 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.

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 moeller.philip@gmail.com or @PhilMoeller on Twitter.

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