Tuesday, October 13, 2015

Who Pays More for Medicare?

     Medicare premiums are going up 52 percent next year. But only for 3 out of 10 people. The other 7 beneficiaries have no increase at all.

     Before you panic, here's the background. The experts have told us that we should wait as long as we can before signing up to take our Social Security benefits, even to age 70 if we can last that long.

     The idea is that the longer you wait, the bigger your monthly payment. You can start Social Security as early as age 62, but you take about a 25 percent pay cut compared to what you'd get at full retirement age, which for most of us is 66. Or you can hold off past your regular retirement age and collect a bonus. Every year you wait, up until age 70, you get almost 8 percent more in your check.

     Of course, you give up the income in the meantime; but still, an 8 percent raise every year. Where else can you get that?

     And then Social Security pulls a fast one on you.

     First of all, the government says there will be no increase in Social Security benefits next year. Benefits are tied to inflation; and the government claims there has been no inflation for 2015, so the increase for 2016 is zero.

     But medical costs have gone up, and Medicare needs more money. So, as reported in USA Today, as well as a follow-up article, here's what happens next year. Everybody who's already receiving Social Security benefits -- who has Medicare payments deducted directly from Social Security -- will be "held harmless" from an increase, because Social Security is not going up.

     But everyone else on Medicare will face premiums that will be raised high enough to make up the difference. Those are the people who will pay the 52 percent increase. That includes people on Medicare who have not yet signed up for Social Security, as well as anyone who first enrolls in Medicare next year. Altogether, about 30 percent of Medicare beneficiaries will pay the higher amount.

     So for example, if you're on Medicare and make less than $85,000 a year as an individual or $170,000 as a couple, you paid $104.90 this year for Part B of Medicare. For 2016 you will also pay $104.90.

     But if you've taken the so-called expert advice to delay Social Security, then your Medicare premium will jump from $104.90 to $159.30 -- for the 52 percent increase.

     There are a few ways to get around the increase, as outlined in this Kiplinger report. One way is to quick, sign up for Social Security before the end of October. But before you do, make sure you know what you're giving up, which is all those future 8 percent annual increases.

     So of course I'm one of the 30 percent. Am a sucker for not signing up for Social Security sooner? Well, here's what I'm trying to remember. The reason for the increase is because there's a mandate that premiums cover 25 percent of the actual cost of Medicare. Think about it. Those of us on Medicare only pay a quarter of the actual cost of our care.

     Even at $159 a month, we're still only paying a little more than a quarter of the cost of what the medical insurance should really be. If you'll still be paying $104.90, you're getting an even better bargain, paying less than 25 percent of the actual cost.

     So I can't complain (even though it sounds like I am). But as mystery writer Michael Connelly says, "Can't complain, because nobody listens."

     Here's a chart of 2016 premiums, courtesy of Medicare.gov, Boston College and USA Today:


20 comments:

Snowbrush said...

Interesting post, Tom. Peggy and I both took our benefits at 62 because (a) we don’t know how long we’ll live, and you only “win” by waiting if you live a long time and (b) we have no idea what the government might do with Social Security.

Tabor said...

Hard to win at this game when so much is at stake. I will not be affected but I hope those who are, are like you, able to handle it.

Denise said...

Hi Tom! In Ohio I volunteer with something called OSHIIP, which is Ohio Senior Health Insurance Information Program. We help people chose drug programs or what to do with supplements or whatever they need.

Hubby and I were not going to take my SS at 62 (He's STRS) but then we realized we CAN bank it and make more than 8% a year. It's called LifePath. Call your State Farm agent. I don't know what it is at this exact moment, but when we got into it, it was 14% less fees. Duh.

A cancer diagnosis changes the outlook too. Snowbrush makes two excellent points. We have no idea how long we live or what the future of our entire government will do.

Juhli said...

Thanks for explaining this. I had seen references to increases in Medicare cost but wasn't sure why it was only for some people. I only have Part A now as my husband is still working. I haven't applied for SS yet for the same reason. Our regular health insurance cost went up quite a lot from last year too.

Jhawk23 said...

My wife and I are Medicarriers waiting to see what happens with us this year. In 2013, some extra income put us over the $170,000 threshold and as a result we were privileged to pay the higher rate ($142 and change) for all of 2015.

Now our income was back to "normal" and below the threshold for 2014. I think we should be bumped back to the $104.90 rate for 2016 but haven't checked yet to find out.

Stephen Hayes said...

I decided to take Social Security at 62 rather than wait. The money is more useful now and later it won't be such a big deal.

Janis said...

Excellent information! Hubs and I are still too young for both Social Security and Medicare but I imagine that there will be even more adjustments to one or both when we get there. We planned our retirement financials without factoring SS just in case, but it will be nice to have. What worries me is how complicated they make everything. After helping my parents figure things out (and then taking over when they could no longer do it themselves) I am concerned about our future trying to navigate the system. I hope there will be helpful, easy-to-understand explanations like yours when we get there.

Denise said...

jhawk23,
They will look at your income for 2014.

gigihawaii said...

We will have the same $105 deduction as before, so no problem.

Cindi said...

I guess I made the right decision when I took my Social Security a bit earlier. I won't be hit with the Medicare increase.
But I wonder if Part D and my supplemental insurance will see any increases? Hmmmmm?

Dick Klade said...

Waiting to draw SS, which we did not do, isn't such a cut-and-dried proposition as the "experts" now are telling us. Remember in making your calculations, you will be taxed on all those 8 percent increases.

Linda Myers said...

Really good explanation, Tom. Thanks.

Retired Syd said...

I've read a few articles on this change (and saw it covered on CNBC where they really exaggerated the issue). Your post was by far the best explanation I've seen!

Now, if it makes any of you feel a little better--our MONTHLY individual insurance premium (we're at least a decade away from Medicare) is going from $974 in 2015 to $1,174 in 2016. Even with the premium increase--Medicare is still a fantastic deal.

(And one more math geek comment: The 52% increase in Medicare premiums--if you fall into that 30% of recipients--is about 50 bucks--depending on your income. The 8% premium (each year) you earn by waiting until 70 is about double that on the average Social Security check. And since this medicare premium issue only occurs in a year with no CPI increase--it may still be beneficial to wait. Especially if you expect to live a good long time.)

Kathy @ SMART Living 365.com said...

Hi Tom! Thanks for the info as always. My husband and I are like some of your other comments and aren't there yet so we can't take advantage of the lower rates. BUT, as two self employed people in our early 60s our health insurance is running $1,200 per month so all of your rates sound pretty good to us--especially if we were bringing in those large income amounts. There are so many things to consider it's nice to find sites like yours that help make it more clear. ~Kathy

#1Nana said...

Well, damn! I wasn't planning to take SSI until I turned 66, but since I turn 65 this month, I think I'll go ahead and sign up. Thanks for the clear information.

Bob Lowry said...

My Medicare premiums will stay the same. But, my Medigap policy will go up 10% and Part D drug coverage closer to 20%. Even so, after looking at alternatives I plan on sticking with what I have. Compared to what I used to pay, my medical insurance remains a tremendous bargain and pretty hassle-free.

olynjyn said...

Thanks to your article I called the Social Security office here in Harrisburg, PA and they were unaware of this increase. I was fortunate to get a really wonderful guy on the phone who told me to get the paperwork in order and take it directly to the local office and have it time stamped. He told me not to mail it because he still has mail on his desk from September and it is mid-October. I had just received my first SS check this past Wednesday based on half my ex's benefits and will wait until age 70 to draw on my own. I am still employed and covered under my employer's health plan, but I don't want to risk the higher Part B premium when I retire in a few months, so thanks to your article I may just save that $50 per month. Thank you so much for writing it!!!

IndianaJs said...

There is one way around this big hike in the cost of Medicare and still be able to let your Social Security income grow, IF you are already at your full retirement age (and lucky for once, my husband and I fit this scenario) and that is for one of the spouses--preferably the higher earner--to sign up for SS Spousal Benefits before the end of this year, while letting your SS benifit continue to grow.

Anonymous said...

If you are lucky to live to 70 and to be working it would be great, unfortunately most men and women are denied to work til 70 unless one is in a govt. city, civil service position and state job, whereby your pension is great to begin with, many still are on their jobs well into their 70's! I think waiting for social security to punch in at 70 is reidiculous unless you got a job you absolutely love, never met any person who regrets retiring and taking life easier..Most people cannot find a job past 50 and if one is employed the companies want to get rid of people at 50 I have seen it and my hubs tooo, he held out but his back did not, we are okay with everything, his parents got social security benefits for many many years and so does my aunt who is almost 100 and she made a bundle buying homes and hanging on to them the rentals paid plenty (California) then sold for a big bundle! It is all in one's presepective, I would rather see some of what I earned than none, one can drop dead a week after retirement, that happened to 5 of my hubs friends, they never even got to go on planned cruises with longtime married spouses, what a damn shame!!!!!!!!!!!!!!!!!!!!!

Anonymous said...

In my early 50's and I am a saver and investor, but still a worry wart .... doing the math, taking social security at 62 makes sense for most unless you have longevity in your family history... assuming you retire at 62. You have to live past 78 for it to start working in your favor for waiting... so depends on your general health in my opinion...But I will re evaluate when I get closer to retirement...I also think getting "grandfathered in" as soon as possible might be a good thing.

I would also recommend looking at fees closely on some of those Life Funds. Sure they make asset allocation easier as you get older, but some of them carry 5% sales commission, and then 1.5% expense fees...

Assuming rates will be higher in 10 years so I hope to have enough saved to ladder some CD's, and then still have some index funds, and short term bond funds.