Next year, typical retirees could see their expected Social Security cost-of-living adjustment for 2018 virtually wiped out by a big jump in Medicare premiums, but premiums for many higher-income clients could remain the same as 2017.

This potentially bizarre situation is the result of the "hold harmless" provision that is designed to protect most retirees from a net decline in Social Security benefits from one year to the next.

Although it is still more than a month away from the official 2018 COLA announcement, the latest Consumer Price Index (CPI) for August suggests that Social Security benefits could increase by about 1.8% next year. The Social Security Administration will make its official announcement about next year's COLA in October.

Most seniors have their monthly Medicare part B premiums deducted directly from their Social Security benefits. The hold harmless provision prevents the annual increase in their Medicare premiums from exceeding the dollar amount of the increase in their Social Security benefits. It protects about 70% of Medicare enrollees.

The remaining 30% of Medicare enrollees are not protected by the hold harmless provision. They include people who are not collecting Social Security benefits because they are not eligible, such as some public-sector employees, or because they want to delay benefits until they are worth more at an older age. New enrollees in Medicare are also not covered by the hold harmless provision.

In addition, high-income seniors, defined as individuals with a modified adjusted gross income over $85,000 or married couples with joint incomes over $170,000, are not protected by the hold harmless provision. MAGI includes adjusted gross income plus tax-exempt interest. Medicare premiums for 2018 will be based on 2016 tax returns.

Most people who enrolled in Medicare before 2016 paid about $104 per month for Medicare Part B premiums which covers doctors' fees and an outpatient services. Because there was no Social Security COLA in 2016, there was no increase in their Medicare Part B premiums.

In 2017, Social Security benefits increased 0.3%, boosting the average benefit by about $5 per month and capping Medicare Part B premiums for protected beneficiaries at about $109 per month. In contrast, new enrollees in 2017 pay the new standard Medicare Part B premium of $134 per month.

This year, high-income retirees pay the standard monthly premiums of $134 per month plus a monthly surcharge ranging from $53.50 to $294.60 per person. Surcharges of up to $76 per month also apply to Medicare Part D prescription drug plans.

The 2017 Medicare trustees report projects Medicare Part B premiums will remain at $134 per month next year. An official announcement about Medicare premiums for 2018 will be made this fall.

If the Trustees projections are correct, people who are already paying $134 per month, and many high-income retirees who pay a monthly surcharge, would continue to pay the same Medicare Part B premium next year. However, the highest-income retirees could pay even more due to new income tiers that take effect in 2018.

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