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Medicare Forecast: Part B Premium Going Up For Some
No Social Security COLA Projected For 2016
Editor's Note: In late November, a budget deal was struck between Congress and President Obama which contains to the Medicare law that prevent the servere increase in Medicare Part B premiums that are spoke of in the following story. Read the latest news on this issue here.
November 2015 Voice: Five years ago (January 2011), some of our members were hit with an increase in their Medicare Part B premium, but a vast majority were not. And it looks like we’re headed down that same path again. Ed Note: We won’t know for certain until mid-October, after we’ve gone to press. But all indicators now point to the eventuality that some but not all will be impacted. Please check the Association’s Hotline and website for the latest.
To understand why history may be repeating itself, we have to first turn to Social Security. According to the 2015 Social Security Trustees Report, an automatic COLA (Cost-of-Living Adjustment) will not be paid in 2016 to Social Security beneficiaries. This marks just the third time that a Social Security COLA will not be paid since 1975 when the automatic COLA first became part of Social Security. Three times in 40 years!
“Four years ago, – 2011, to be exact – I explained in the Voice how the COLA is calculated for Social Security,” recalls Association Treasurer Gerry Coughlin. “I did it, in part, because in 2010 and 2011 Social Security didn’t pay a COLA.
“Without delving too deeply into the formula, a COLA can only be paid next year (2016) if the federal Bureau of Labor Statistics (BLS) reports that the Consumer Price Index for Urban Workers (CPI-W) for this July, August and September (2015 third quarter) exceeds the CPI-W for these three months last year (2014 third quarter). As it looks right now, it won’t, meaning no COLA would be paid for 2016.”
With higher copays, deductibles and other out-of-pocket expenses, our members may understandably not agree with the BLS that there’s been no inflation increase for them. In fact, according to an “experimental” price index developed by BLS for persons 62 or over (CPI-E), the elderly spend twice as much of their income on medical care as the general population.
But again, this CPI-E has not been officially adopted and the CPI-W for the general population still controls. Again if the CPI-W for the 2015 third quarter fails to exceed the CPI-W for the 2014 third quarter, no COLA will be paid in 2016 – end of story.
Part B Increases Outpace COLA
There is a significant ripple effect if a COLA is not paid by Social Security. It involves the Medicare Part B premium.
By way of background, Medicare Part B generally covers physician and outpatient hospital services. About 75% of the Part B costs are paid by the federal government while the remaining 25% comes from a monthly premium paid by Medicare beneficiaries, which is typically deducted from their Social Security checks.
Each year the federal Centers for Medicare and Medicaid Services (CMS) determines the monthly premium for the coming (2016) year based upon their projections of Part B costs for that year. Their projections are not tied directly to the CPI –W or any of BLS’s indices.
Instead, CMS’ projections on Part B costs are based upon their assumptions about general price inflation, excess medical inflation and more importantly changes in the utilization of medical services, as well as changes in the complexity of medical services. While not formally announced yet, it’s been reported that CMS has projected that Part B costs will increase for 2016, meaning the monthly premium could go up from $104.90 now to potentially $120.70 monthly – a sizable 15% increase.
It’s not unusual for Medicare Part B premium increases to outpace Social Security COLAs. According the Boston College’s Center for Retirement Research (CRR), the Part B “premium has on average risen over twice as fast as the [COLA] benefit.” A recent report by CRR Director Alicia Munnell includes a bar graph that dramatically demonstrates that finding. See Bar Graph Above.
Whopping 52% Premium Increase
And here’s the twist. For most Medicare beneficiaries, the Part B premium will probably not rise to $120.90 but will remain at the current $104.90. There is a “hold-harmless” provision in the federal law that says you stay at $104.90 if you do not receive a Social Security COLA in your 2016 check and also satisfy certain other conditions.
These other conditions include that you are not newly enrolled in Medicare and have your Part B premium deducted from your Social Security check.
Some 70% of Medicare beneficiaries – many of our members – meet these conditions and therefore would continue to pay $104.90 for their Part B.
However, there is the other 30% who are not held-harmless, and some of our members are among them. Those, subject to a premium increase, include retirees who enroll in Medicare on or after January 1, 2016, or pay their premium directly to CMS (commonly referred to as “Direct Pays”) or are required to pay a surcharge (in addition to the basic premium) based upon their income.
We must take special note that there are survivors – some are members – who are subject to the Offset Law and receive a very small or no Social Security check. Because of their circumstances, they are Direct Pays when it comes to paying for their Medicare and therefore not protected by the hold-harmless provision.
Not only would these widows and other affected retirees see their premiums go up but even more than the projected $120.90 reported earlier for all Medicare beneficiaries. Their premiums could jump from the $104.90 to an incredible $159.30 – a whopping 52% increase! And those paying theMedicare surcharge would face even higher amounts.
We’re referring to higher income Medicare enrollees (i.e., individuals with incomes of $85,000 or more) who would see their Part B premium spike even more. According to CMS, it’s projected that premiums for these individuals would climb to $223 per person, capped at an astounding $509.80.
“As I understand it, their premiums would go up so much because they, as a group, must pay the entire 25% of Part B costs,” explains Coughlin. “In other words, these retirees and survivors –the 30% – have to pay the added cost for everybody.
“We’ll continue to monitor this situation closely. Please stay tuned.”