I do not know about you, but where does the time go? It seems like just yesterday I was writing about the Medicare mess we are in.
Oh, well, at least something is consistent in life, yes?
Did you know that if the government fails to act swiftly, then about one-third of Medicare participants will see a 50% increase in their Part B premiums ... but the rest will see no change?
[Go ahead and rub your eyes, but you read that correctly.]
As a result, most participants will pay the same $104.90 monthly premium next year as they paid this year, while other others making the same income will pay $159.30.
In addition, some some "high-income" retires will pay as much as $509.80.
As a consequence, this whopping premium increases could encourage many seniors to take Social Security benefits earlier than they otherwise would have.
An increased burden on the already bankrupt federal retirement system.
The premium spikes will further hit state Medicaid programs with an enormous unanticipated bill.
As a recent article in Forbes notes, the issue is largely due to the complex linkage between Social Security and Medicare.
The article is appropriately titled “Untangling the Medicare Premium Mess -- And What It Means For You.”
Expectedly, the Medicare laws require bumps in premiums to cover increases in per capita costs.
Fair enough, we get how inflation works.
Thus, if next year were a normal year, premiums for most beneficiaries would go up about $16, from $104.90 to $120.70.
That seems reasonable. Although no one wants to pay more for no added benefits, most can budget for that.
Problem: 2016 will not be a normal year, according to the original article.
Most retirees have their Medicare premiums deducted from their Social Security benefits, but because inflation was so low this year, there will not be a corresponding cost-of-living increase in 2016 for Social Security.
Do the math.
Under the law, if Social Security benefits do not rise, then neither can the Medicare premiums.
At least not for most folks who get Social Security benefits.
Translation: More that two-thirds of Medicare beneficiaries will not suffer the premium hike.
But what about the rest?
The entire burden of this year’s Medicare cost increases will hit them hard in the wallet ... with 50% premium hikes.
Who are these Americans who get an opportunity to be a bit more "patriotic"?
It includes high income seniors, new enrollees, those enrolled in Medicare but not getting a Social Security check, and the so-called “dual eligibles” (those who receive Medicare and Medicaid benefits with their premiums are paid by state Medicaid programs).
For high-income people, those premium hikes are hefty.
For a single retiree making more than $214,000, Part B premiums are will increase from $335.70 to $509.80.
Some of them would be better off buying insurance under the dreaded Affordable Care Act exchanges than to buy Part B plus Part D drug coverage and a Medigap policy!
On the other hand, they also might be better off with Medicare long term.
Indeed, this is complicated stuff.
What about retirees who are not high-income earners?
They, too, have some tough choices.
For example, the conventional wisdom over the years has been to delay taking Social Security benefits for as long as possible.
However, these special circumstances in 2016 may give some the exact opposite message.
For example, say you are a retiree who is age 67, single, earn less than $85,000, and are enrolled in Medicare but are not yet taking Social Security.
The original article reminds you that under the rules you must pay a large increase if your premiums are not being deducted from your Social Security check.
So, if you claim Social Security now and start having premiums deducted, you can save more than $500 in Medicare premiums in 2016, and you start getting Social Security benefits.
But even that is a potential wash.
You may also receive less in lifetime Social Security benefits.
Bottom line: You will need to use a sharp pen, some paper and a calculator to evaluate your best approach in the short-term and over the long haul.
Contact your estate planning attorney for a referral to a financial advisor who can help you navigate these troubling financial currents.
Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.
For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.
Reference: Forbes (October 9, 2015) “Untangling the Medicare Premium Mess -- And What It Means For You”