Retirees Saved from Sharp Medicare Premium Increases

You might have seen reports over the summer and fall that Medicare premiums for about 30% of beneficiaries would increase 50% or more in 2016. No one has to worry about such substantial increases now, though they will pay the increases over time.

The potential increases were due to some quirks in the interplay between Social Security and Medicare. Most Medicare beneficiaries have their Part B premiums deducted from their Social Security benefits. Under the law, people in that situation can’t have their Part B premiums increase any more than their Social Security benefits in dollar terms. In other words, the increase in Part B premiums can’t cause a net reduction in net Social Security benefits.

In 2016, for only the third time, there won’t be a Social Security COLA. That means Part B premiums can’t increase at all for the 70% of beneficiaries whose premiums are deducted from Social Security benefits.

Also by law, Part B premiums have to pay for 25% of the next year’s estimated cost of the program. That means the entire increase in Part B costs has to be paid by the 30% of beneficiaries who aren’t saved from the premium increases. That’s primarily new members and those who aren’t yet taking Social Security benefits. Also higher-income beneficiaries who pay the premium surtax would bear part of the burden. Estimates were for premium increases of 50% or more for this group.

Fortunately, those high projected increases aren’t going to happen. In the Bipartisan Budget Act of 2015, Congress and the administration agreed to limit the premium increases to a maximum of 15%. Congress will borrow to make up the difference. The affected beneficiaries will pay the loans over time by having an extra $3 added to their monthly premium until the borrowing is repaid.

RW December 2015.