Social Security and Medicare Part B

In 2016, it is unlikely that Social Security “cost of living” benefits will increase. Conversely, there is a high probability that Medicare Part B premiums will increase steeply in for the same year. The combination of these two events has many people worried about an overall decrease in their net Social Security benefits.

For beneficiaries, Medicare Part B premiums are taken out of their monthly Social Security payment. The standard Medicare charge is 104.90 per month. In addition, there are varying Medicare premium tax brackets (based on the beneficiary’s Adjusted Gross Income), which deduct anywhere from $42 to $230.80 on top of the standard charge. An increase in these fees without a corresponding increase in Social Security COLA would result in a net reduction of Social Security benefits for many people.

The good news is that there is a “hold-harmless” provision in the United States Social Security Act. This provision states that there will be no Medicare Part B premium hike greater than the increased cost of living benefit from Social Security. Because of this, the majority of those who receive Social Security do not have to worry about a Medicare premium increase.

Unfortunately, the hold harmless provision does not apply to everyone. If individuals have just qualified for social security in 2016, or if they have elected to suspend their benefit payments until age 70 and receive delayed retirement payments, they are ineligible for the provision. Furthermore, all retiree’s with income over $85,000 (single) or $170,000 (married) are not allowed to claim the provision for any reason.

Under both cases where the “hold harmless” provision is inapplicable, individuals have the option of filing for Social Security in October, collecting benefits in November and December, and deducting Medicare payments from these benefits. It is estimated that the Medicare Part B payment increase will be around $50 per month. These expenses will be saved by taking Social Security payments.

Though this plan seems reasonable, it could turn out to be an unwise decision. The net benefit of pushing back SS benefits until age 70 ($768 per month) is much greater than the cost of increased premiums ($50 per month) today. For those unable to claim the hold harmless provision, it would appear much wiser to pay the increased premiums now and continue to wait to draw on Social Security until age 70.