Medicare Part B Premiums Will Rise by 16 Percent in 2016 for Some Seniors

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The Centers for Medicare & Medicaid Services has quietly made it official: Medicare Part B premiums for 30% of Medicare recipients will jump next year, but not as high as they would have without the bipartisan budget deal passed late last month. While 70% of Medicare beneficiaries will have their premiums held to the same $104.90 per person a month they paid in 2015, the unlucky 30% will face a 16% increase in their base premium from $104.90 to $121.80 per person per month. And the 5% of beneficiaries who pay a high income surcharge, will pay a 16% increase in that surcharge, along with paying the higher base.

Without the budget deal, both the base and the surcharges for Part B, which covers doctors’ and outpatient services, would have risen by 52%. “By historical standards it (16%) is a very, very large increase,” says Joe Antos, health policy expert at American Enterprise Institute. “It’s not as much as it would have been, but it’s big.”
As for the high income premium payers, they’re “in a permanent state of shock,” Antos observes. Graduated high-income premium surcharges for seniors kick in for singles with a modified adjusted gross income of more than $85,000 and for couples with a MAGI of more than $170,000. (The premiums for 2016 are based on the AGI reported on 2014 tax returns.)

An individual earning more than $85,000, but less than or equal to $107,000, will pay $170.50 a month in 2016, up from $146.90 a month this year. A wealthy senior couple with AGI of $428,000 or more will pay $9,355 a year in Part B Medicare premiums, up from $8,056 in 2015.

The Part B premium debacle is set against the backdrop of falling oil prices, which means that overall inflation has been almost nil, and Social Security recipients will get no cost of living increase for 2016, their first year since 2011 without a boost. A 1987 “hold harmless” provision, designed to keep recipients’ Social Security net checks from shrinking, provides that for ordinary retirees who have Part B premiums deducted from their Social Security checks, the standard premium can’t go up in any year by more than the extra dollars they’re getting as a cost of living adjustment in their Social Security checks. That protects 70% of recipients.

But medical costs, and in particular Medicare’s costs, are increasing. And a different law requires that premiums paid by beneficiaries cover 25% of Part B total costs. The odd result: the increases the 70% of recipients don’t pay are shifted onto the 30% who aren’t protected by the hold harmless provision. That unlucky 30% includes those who are better off, those who don’t have Medicare premiums withheld from their Social Security, and those who didn’t receive Social Security in 2015.

Here’s the table of what you’ll pay per month for 2016, depending on your income, for individuals and for couples filing a joint tax return:

Beneficiaries who file an individual tax return with income: Beneficiaries who file a joint tax return with income:

Income-related monthly adjustment amount

Total monthly premium amount

Less than or equal to $85,000 Less than or equal to $170,000

$0.00

$121.80

Greater than $85,000 and less than or equal to $107,000 Greater than $170,000 and less than or equal to $214,000

48.70

170.50

Greater than $107,000 and less than or equal to $160,000 Greater than $214,000 and less than or equal to $320,000

121.80

243.60

Greater than $160,000 and less than or equal to $214,000 Greater than $320,000 and less than or equal to $428,000

194.90

316.70

Greater than $214,000 Greater than $428,000

268.00

389.80

Note these officially-released numbers are slightly higher than those talked about after the budget deal: $120.70 for the base monthly premiums for those not held harmless. “This is actuarial nitpicking at its finest,” Antos says.The last time we saw hikes like these was in 2011, when premiums for high income folks rose 15%, and Antos warns that we could see them again for 2017. Starting in 2020, the high income premium brackets will be adjusted for inflation, so that promises to keep some out of reach of the income surcharges. But don’t count on it. “We’re going to have several years of Congress looking for money from Medicare,” says Antos. “It’s easy to remove that indexing. It’s always easier to pick on high income people than anybody else.”

Is there a way around these high premiums? Use strategies now that will let you control your adjusted gross income in retirement. The income-related premiums are based on your income two years prior. Planning ahead with Roth conversions can help manage your bracket in retirement. Fidelity’s latest retiree healthcare cost is $245,000 a couple and that’s not including income-related Part B surcharges.

If you have a high deductible health insurance plan now, fund a health savings account and invest it until you need it for medical expenses in retirement (you can use money in a health savings account for Medicare premiums but not for Medigap policies). It’s possible to build a $150,000-plus health savings account. If you’re already getting hit with Medicare income-related premiums, bunching income into one year can help keep premiums down another year.

Written by Ashlea Ebeling of Forbes

(Source: Forbes)

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