November 2017 Newsletter
The October announcement of a 2018 2% cost of living adjustment (COLA) was welcome news for Social Security recipients. While 2% is not a large number, it comes on the heels of 2016 0% COLA and 2017 .3% COLA. Medicare joined the good news by announcing there will be no increase to the base Part B premiums in 2018. Given that most individuals see the Part B premiums deducted from their Social Security Retirement Benefit, one would expect to see a simple 2% pay raise next year.
The reality is:
- Most Social Security recipients will see close to no increase to their benefit.
- A very small group will see the 2% increase.
- Another small group will see a reduction in their benefit.
If you, as a financial advisor find this confusing, consider the frustration your clients will experience in January. Understanding why this is happening and offering some education to clients won’t change the situation, but will at least alleviate some confusion.
The short and somewhat simplified explanation is that most Social Security recipients have been sheltered from significant increases to Medicare Part B premiums in 2016 and 2017. The shelter comes from a piece of legislation (Hold Harmless Provision) that prevents Medicare from increasing the Part B premiums by more than the Social Security COLA. Now that there will be a 2% COLA in 2018, the increases from 2016 and 2017 will be reflected in 2018 Medicare Part B premiums.
If you do the math for a typical Social Security recipient, their Part B premium will increase from $109 per month to $134 per month, wiping out all but a few dollars of that 2% COLA.
More recent Medicare enrollees such as 2017 Medicare enrollees, are already paying the $134 per month and therefore will experience the full 2% COLA unless……
Your income is above $133,500 (double that to $267,000 for joint filers). A change in the tax law from a few years ago goes into effect in 2018 that introduces new income brackets which determine the amount of your Part B premium. See the chart below for detail.
Current Income levels & Part B Premiums
|2015 Single Modified AGI||2017 Monthly Part B Premium|
|$85,000 or less||$109.00-$134.00|
2018 Income Levels & Part B Premiums
|2016 Single Modified AGI||2018 Monthly Part B Premium|
|$85,000 or less||$134.00|
Keep in mind that 2018 Part B premiums are determined by your 2016 income. Joint filers can double these income brackets. As you can see, if your client’s income is above $133,500 they will have an approximate $80 monthly Part B increase, which will reduce their Social Security benefit.
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The information in this presentation is provided as a general overview. It is derived from the Internal Revenue Code, Medicare.gov and other government publications, all subject matter sources reasonably believed to be reliable. Tax law and the laws governing Medicare/Medicaid are complex and subject to change. Clients should consult with their attorney and/or qualified tax advisor when making decisions regarding these matters.