Last week's agreement on the federal budget brought two new developments for retirees -- one about Medicare, the other on Social Security.
According to a report in the Washington Post, the premium increases for some Medicare customers will not be as punishing as previously reported (see my Oct. 13 post Who Pays More for Medicare).
Under the first proposed plan, most people who do not have their Medicare premium deducted from their Social Security benefit would have seen a 52 percent increase in their premium for Medicare Part B, from $104.90 to $159.30. (The exception: individuals making over $85,000 a year, or couples making over $170,000 a year, who pay more.) Medicare recipients who do have their premiums deducted from their Social Security payment were "held harmless" -- in other words, they were protected from any increase at all.
The reason for the disparity: a federal rule says that Medicare rates in a given year cannot increase more than Social Security checks. Since Social Security benefits are not going up next year (because inflation is judged to be zero) Medicare charges cannot go up. That meant people who are on Medicare, but who do not receive Social Security, had to pick up the difference. That would have punished approximately 16 million people, or 30 percent of Medicare recipients, with the 52-percent increase..
The new agreement still holds harmless anyone who has Medicare deducted from their Social Security. But it limits the increase for the rest to some 17 percent, raising their premium from $104.90 to about $123 per month. The extra money to cover the difference will come from "a loan from the U.S. Treasury to the Medicare trust fund." The loan will presumably be paid back over five years with a $3 per month "surcharge" embedded in the new premiums.
Please don't ask me to explain any further details, because I do not have the wherewithal to dig deep into the weeds of Medicare financing. Do any of us? But personally, as one of the 16 million, I do appreciate the financial shenanigans that will save me $30-some per month next year.
And speaking of shenanigans, the New York Times reported yesterday that the federal budget deal also closes two "loopholes" in filing for Social Security. One is called the "file and suspend" strategy. This maneuver allowed two-income married couples to boost their benefits. One spouse would file for benefits, then immediately suspend them, allowing them to collect while the spouse's benefits continued to grow at the Social Security rate of about 8 percent a year.
The other loophole was known as "restricted application." This allowed married people who reach full retirement age (66 for most of us) to collect a spousal benefit while their own benefits continued to increase -- again, at the 8 percent rate.
Starting in 2016 filers will no longer be able to utilize these strategies. But don't worry. If you took advantage of either of these methods in the past you will be grandfathered in. Apparently, there aren't that many -- something less than 1 percent of Social Security recipients used one of these strategies to boost their benefits. But, presumably, it will save the Social Security system billions of dollars in future obligations. And, assuming the file-and-suspend people were not the neediest among us, that's probably not a bad thing.