If you’re collecting Social Security benefits, you’re probably well aware that the federal government will not be issuing a cost of living adjustment (COLA) for 2016. It’s the third instance of a 0 percent COLA this decade, and it’s based on an inflation reading of equal number—zilch.
Of course, that’s largely due to the plunge in energy prices. Retirees know better than anyone that other costs are rising. Key among them: health care.
Yes, in a cruel contradiction, Medicare Part B premiums are not staying flat. As in nearly every year prior, they will increase for 2016. All things being equal, that would presume your Social Security check goes down as of Jan. 1, when Medicare goes up.
The good news for individuals with annual income below $85,000 (and couples below $170,000), is that the hold harmless provision will kick in. It essentially says that in years when the Social Security COLA isn’t large enough to cover the Medicare increase, you will not be subject to a higher Part B premium. The government cannot harm you by reducing your benefits from the prior year.
However, for individuals and couples above those income thresholds, the pain will be particularly acute. The Medicare system still has to cover its costs, so the premium increase is larger for those deemed to be higher-income beneficiaries. Some estimates suggest the increase could be greater than 50 percent. Ouch.
These latest developments have me contemplating the increasingly complicated and expensive reality of retiree health care costs. Some remain hopeful that the federal government might have a trick up its sleeve (or just some relief) for the steep hike in Part B. While I profess no magic powers, I will offer the following thoughts and strategies that may help relieve your health care sting, or at least make you a more informed user of the Social Security system.
Four Considerations for Medicare and Social Security
1. CONSIDER UNSUSPENDING
If you have filed and suspended taking Social Security benefits, but participate in Medicare, you may want to consider reinstating Social Security benefits for November and December 2015. Why? Because to qualify for hold harmless, and therefore avoid the increase in your Part B premium, you need to have received a Social Security check in November and December. Be sure to do this by Oct. 31 with an easy call to the Social Security Administration (SSA). You can then suspend your Social Security benefits again beginning in January, and may enter that request at the same time.
2. KNOW YOUR LIMITS
Medicare premiums are determined based on money made for the year. So if you are close to income thresholds that would slot you into a new premium, talk to your accountant and/or financial advisor to see what adjustments you could make to remain in the lower threshold. Perhaps you could sell an investment at a loss or take a distribution from a Roth IRA instead of a traditional plan. Do this after Nov. 15. It’s not going to produce a windfall, but it could limit the Medicare increase you experience in 2017 by keeping you in the same premium bracket.