COLA or No COLA Part II

November 2016 Newsletter

Each year in October Social Security recipients await the announcement of the Cost of Living Adjustment (COLA). This COLA states how much of a Social Security Retirement Benefit increase, if any, one will see next year.

On the heels of the October COLA announcement, the Department of Medicare and Medicaid Services (CMS) announces the increase in Medicare costs for next year.  Since Social Security automatically deducts certain Medicare costs from Social Security Benefits, one must await both announcements to get a better idea of your Social Security Benefit next year.

The bottom line, after the 2016 announcements, is that close to 70% of Social Security Retirement Benefit recipients will not see a change in their benefit amount. Many of the remaining 30% will actually see a decline in their benefit.

To understand the logic, follow along:

  • Medicare Part B premiums will increase by 10%.
  • The COLA adjustment for Social Security will be .3%.
  • “Hold Harmless” legislation states that for those under a certain income threshold, the increase in Medicare Part B premiums cannot decrease the Social Security Benefit.

The net effect is that most recipients are sheltered from the full 10% increase in Medicare B premiums but will see enough of it to eliminate the .3% COLA.

If you are above the income threshold, you are already paying an increased amount for your Part B and Part D coverage. The 10% increase in Part B will

Result in a decrease in the Social Security Benefit.

It is interesting to note that the stated increase in Medicare B costs will not be sufficient to cover the costs to the government to provide this coverage. The CMS announcement stated that the CMS Secretary “has exercised her statutory authority to mitigate projected premium increases for these beneficiaries, while continuing to maintain a prudent level of reserves to protect against unexpected costs. The Department of Health and Human Services (HHS) will work with Congress as it explores budget-neutral solutions to challenges created by the “hold harmless” provision.”  This means the actual costs to offer Part B coverage warrant an increase larger than 10% but CMMS decided to shelter recipients from a greater increase by using some of Medicare’s “reserves”.

The 2017 Medicare Part B premiums are listed in the chart below. There is a range of costs for the first income bracket because those who were enrolled in 2015 (or earlier) pay a different amount than those who enrolled in 2016 or 2017 due to the hold harmless legislation.

One wild card still remains. In order to limit 2016 Medicare B price increases, there was supposed to be a $3 per month surcharge for all Medicare B premiums. There has been no mention of this surcharge leaving us to assume it will not be implemented. Perhaps the cost is being absorbed by the “reserves”.

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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.

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