What Will Medicare Do? Or perhaps we should ask “What is Medicare About To Do? This is a story about the “rubs.”
The Medicare program is governed by federal laws that require it to set rates and fees that will properly and appropriately pay for Medicare services. Of course, there’s one slight hitch. People already enrolled in Social Security are to be held harmless from any Medicare fee increases in excess of Social Security’s annual cost of living adjustment. Under such circumstances where the rates cannot increase for Social Security recipients, this shifts all the costs to others.
And therein lies the rub, or one of them.
If the CMS director does not intervene, Part B premiums and IRMAAs (income related monthly adjustment amounts – ie. means testing) will increase by a factor of up to 52% for 2016.
I’ll bet you’d like some numbers on this:: the 2015 base rate for Part B is $104.90 per month. If the rate increase is not adjusted, this could rise to $159.30 per month! Ouch!
For the highest tier of means testing, this would mean an increase from $335.70 per month to $509.80 per month. Ouch, Ouch!!
The Medicare Advisory Board of Trustees, estimates that this could apply to 30% of those people on or applying to Medicare in 2016 (over 7.5 million people).
Who are these 7.5 million folks? Those new to Medicare and those already on Medicare but who are not signed up for Social Security.
And therein lies another rub.
The federal government has been aggressively promoting the message to Americans approaching retirement to consider how much more they can get from Social Security if they delay taking payments until after Full Retirement Age (66) – up to 32% more at age 70. This message has been taken up by advisors and a growing percentage have latched onto that message, such as those still working after ages 65-66.
And herein lies another rub.
The Social Security Act has a provision that states that Medicare cannot adjust a premium greater than the annual cost of living adjustment established by Social Security – also known as the “hold harmless” provision. With inflation so low, Social Security may not enact a cost of living adjustment this year. That means that Medicare would have to spread its projected cost increases across that portion of Medicare beneficiaries that are not covered by the hold harmless provision – ie. new enrollees and those beneficiaries not already on Social Security.
And therein lies another rub.
The 3+ million Medicare beneficiaries that are subject to higher, means tested premiums due to their incomes exceeding the established IRMAA tiering will see their adjustment rise dramatically. Another 1.6 million have deferred their Social Security. Another 2.8-3.0 million will be new to Medicare in 2016. That’s over 7.5 million people.
There’s more. Nine million folks receive Medicaid benefits as well as Medicare. While the lower income enrollees do not suffer directly, the states, which share a portion of Medicaid costs with the federal government, will find a rather large dent in their states’ budgets to come up with the costs that they must share to pay for the base rate Part B premium. That’s just under one-half billion dollars.
What if Social Security does not announce a cost-of-living increase in 2016, but then does in 2017? In such a situation, the population for spreading the higher costs increases significantly and Part B premiums and IRMAA adjustments could moderate or even decrease, as happened a few years ago. But that would be next year, and the year after that.
And then there’s yet one more rub.
The Secretary of the Department of Health and Human Services (HHS) has the ability to adjust the increase. And Secretary Burwell has said she will search for ways to reduce the premiums for 2016. She would have to evaluate whether Medicare has sufficient reserves, current projection, additional data and other policy options. Considering that even Part A of Medicare has been living off of IOUs to the Medicare Trust Fund for some years, this could be a troubling exercise.
It occurs to me there is another path for the Secretary to avoid this mess — find a cost of living increase for the year that is anything but zero. However, if she can’t come up with that, ¬†well¬†there’s yet another rub.
If, for example, you were not claiming Social Security and were waiting to cash in on higher payments, you would like to know whether to pull the trigger and sign up. Unfortunately, there are certain deadlines to make this happen and the Secretary’s announcement may not come before the deadline.
If this might affect you, why not give me call soon, and we can run some numbers to caste some light on this issue for you. Then you will have some idea of what your appropriate alternatives are.
Background information from the Wall Street Journal, “An Unexpected Spike for Medicare Premiums” by Anne Tergesen, July 31, 2015, updated version. This is subscription service.