We are closing in on the time of year when Medicare and Social Security will be making changes to the benefit amounts and the costs to the over 50 million recipients of the programs, which include both retirees and the disabled. Right now, there’s potential for a real financial heartache and what will scare you is what is currently being considered for 2017. The official announcements for the Social Security Board of Trustees (SSBOT) and the Medicare Board of Trustees (MBOT) will come in just a few weeks in October 2016. In fact, the MBOT just met this month to gauge the need to increase Medicare costs to its covered users.
Any adjustment in the COLA (Cost of Living Adjustment) or Medicare premiums will be announced in October by the SSBOT. I’m sure it will be debated and discussed as it has been done over the years, since two of the past three years have seen no increase to benefits as they made the decision that inflation was at zero. These decisions have been highly controversial because many recipients feel that there is significant inflation in many basics like food, healthcare, and prescription medicines while SSBOT uses a “basket of items” to make their decision. The significant fall of the price of gasoline has had a big impact on cost of living, despite the fact that it isn’t the big influence on seniors and disabled people that it is on younger, healthier active ones who work, commute, and even travel more often that SS recipients.
The decision not to increase benefits through a COLA at all has only happened three times in history (COLA was begun in 1975), but all of them have occurred since 2010. Medicare costs rise as needed to cover the ever expanding numbers. Let’s look at the recent history at these decisions.
Medicare Premiums and COLA for 2016
Last year, Medicare users like me (a total of about 70% of all beneficiaries and users) escaped an increase in the monthly premiums because there was no increase in COLA. The regulations say that users cannot have their premiums raised when no COLA occurs and their total income is below the national average. This is called the “hold harmless” rule. I and millions of others saw their Medicare premiums remain at $104.90 per month which is deducted from your monthly SS benefit amount (the average amount this year is $1,335.00 a month). The regulation says that your Social Security benefit cannot decrease because of an increase in Medicare Part B premiums and that is what would have happened. For the remaining 30% of Medicare users in 2016, the monthly premium was raised to $121.80 per month, an increase of over 16% from the rate in 2015.
Medicare Premiums and COLA expected for 2017
Now we look at what is likely to happen for 2017. The MBOT is considering a very small adjustment of 0.2% in the SS payments under COLA. That’s what seems likely to happen. That amounts to an increase in SS payments by $2.67 a month (based on $1,335 average payment to all recipients). Just $2.67! (Update: As of 10/18/2016, the COLA for 2017 will be 0.3%, or just $4 for the average recipient)
The MBOT has also recommended that Medicare premiums be raised to $149.00 per month beginning in January of 2017. ( as of 10/18/16 that has been officially declared at $134.00 per month, a roughly 10% increase from last year) That’s over a 22% increase from the rate of $121.80 and an increase of over 50% in just 2 years from the 2015 premiums. Since those that are already enrolled in Medicare prior to 2016 have already been held harmless in 2016 due to the increase in 2015, these recipients (my wife and me included) will automatically have their premiums raised to $121.80 per month. (Update: As of 11/10/16, Medicare premiums were announced that 70% of recipients will pay $109.oo a month and the remaining previous recipients will pay at least $134.00 or more per month depending on the income and marital and filling status) That means the average person receiving SS will see their overall benefit decrease by $14.23 per month. (Update: 70% of all previous recipients will see no increase or decrease in their benefits while the remainder will actually see their benefits decline)
The average retiree would lose about $170 for the year.
For those who enrolled for the first time in 2016, they will get the small increase in SS but be held harmless to the increase to $149.00 on Medicare and pay the premium of $121.80. But only if there is an increase in COLA at all.
The Real Danger
If Social Security COLA is zero (which is possible), then provisions of the Bipartisan Budget Act of 2015 kick in, and the 2017 Medicare Part B premiums would increase without any hold harmless effects at all. That will result in a real disaster. Due to these federal regulations, every retiree will see their Medicare Part B premiums rise to $149.00 and no one would be protected by the hold harmless rule. That will decrease the average recipient’s SS benefit by $44.10 a month and there will be no COLA!
The average retiree would lose over $500 for the year.
If you are enrolling for the first time in 2016 for Medicare, you will pay $121.80 for your premium if there is no COLA and you would fall under the hold harmless rule.
In any event, everyone on Medicare will pay more in 2017 than they or anyone paid in 2016 by at least 16%. In my case, it could be as much as an increase of $44.10 per month or over 40%. Since both my wife and I use Medicare, it means that we will be paying about $1,000 more for this insurance than we did this year.
While healthcare coverage costs are rising for everyone, keep in mind that most Medicare recipients (us included) also need to pay for a supplemental or advantage insurance policy to adequately cover their healthcare needs, and this doesn’t include rising premiums there. Combine that with the fact that for 61 percent of elderly beneficiaries, Social Security provides the majority of their cash income. For 33 percent of them, it provides 90 percent or more of their income. Any loss of benefits can be significant.
It appears that the fright of Halloween will arrive early for those on Social Security and Medicare and that’s not a good scare that ends with candy, is it? The way to prevent this kind of unplanned scare is to do what you need to do long before retirement. Trying to anticipate what will happen in your retirement when it comes to your health needs, insurance costs, and the cost of doctors, hospitals and medicine isn’t easy. Working on good health habits is when compared to guessing what things may be like 20, 30, or 40 years from now. I wish I had thought about that when I may have been able to do something about it.
Will you be affected by COLA and Social Security benefit changes in 2017? What will you do to prepare for it? Are you at a point in your life when you can do something about your health and your healthcare costs in retirement?