A 52% Increase in Medicare Premiums?
If you are retired and paying medicare Part B premiums, or if you will be in 2016, you could be in for a major increase in the cost of those premiums. Who will be affected and how depends on a number of factors. Let me try to boil it down as simply as possible, recognizing there are always some more complex situations to consider:
- If you are currently taking social security and enrolled in Medicare, and your 2014 (MAGI*) income was less then $170,000 (married filing jointly) or $85,000 (single) - You have nothing to worry about. You are protected by the "hold harmless" provision under social security rules that keeps you from seeing your net benefit decrease. Since there will be no cost of living adjustment for social security benefits in 2016, any increase to your medicare premiums would cause your net benefit to decrease. Therefore your premiums will stay at the $104.90 per month level.
- If you are NOT taking social security but ARE enrolled in Medicare, and your 2014 (MAGI*) income was less than $170,000 (married filing jointly) or $85,000 (single) - Your premium will increase from $104.90 per month to $159.30 per month, a 52% increase. If you are delaying your social security benefits in order to earn the delayed retirement credits, this might make you rethink that strategy, but it shouldn't. Certainly it's a big increase, but consider this example from Mary Beth Franklin in Investment News: "a Social Security benefit of $2,400 per month at 66 could increase by $768 per month by delaying until age 70." This puts the $54.40 per month increase in perspective. If you do still want to reconsider your claiming strategy, you would need to claim your social security benefits by November so that you receive a payment in December and January. This would allow you protection under the "hold harmless" provision discussed above.
- If you are enrolled in Medicare and your 2014 (MAGI*) income was over $170,000 (married filing jointly) or $85,000 (single) - Unfortunately you will be bearing the brunt of the increase in medicare premiums. The "hold harmless" provisions don't apply at this income level. Here is a chart from Investment News showing the estimated premiums, depending on your income level:
These rules are complex and your personal situation will dictate what you should do. As always, we recommend you contact us if you have any questions about this and we can help you come up with a plan. Keep in mind Medicare open enrollment begins October 15 and runs through December 7th so now is a good time to review your plans.
- If you are eligible for Medicare and Social Security but not yet claiming either, and your 2014 (MAGI*) income was under $170,000 (married filing jointly) or $85,000 (single) - You have to consider what your plans are currently. If you plan on enrolling in medicare and taking social security soon, you might want to consider accelerating that to this year so you can be subject to the "hold harmless" provision and lock in the lower Medicare Part B premium price of $104.90. If you planned on delaying social security until 70 and/or you are still working and on an employer's insurance plan, you likely shouldn't change your plans just because of this increase.
If you'd like to read more about this, here are a few articles you can review:http://www.investmentnews.com/article/20150831/BLOG05/150839996/worst-case-scenario-for-medicare-premium-hike-in-2016https://www.kitces.com/blog/social-security-and-medicare-claiming-strategies-to-navigate-the-looming-52-medicare-part-b-premium-spike-due-to-hold-harmless
*MAGI = Modified Adjusted Gross Income = Total Adjusted Gross Income (Line 37 of your Form 1040) + Tax-Exempt Interest
The views expressed represent the opinions of L.K. Benson & Company and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person.
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