Social Security and You: Facing Medicare premium increases

Some of you may have heard that the Medicare Part B premium is going up in 2016 from the current $104 per-month price tag to $159.30. But the increase will only impact a fraction of Medicare beneficiaries. Who is impacted and who is not involves understanding some background information I will provide. And alas, it involves a whole lot of politics, which I will attempt to explain.

Background point No. 1

There are two primary parts to Medicare. Part A, which mainly provides in-patient hospital coverage, is funded by a payroll tax. In other words, you pay for Part A with your taxes while working and it is “free” once you reach age 65. But Part B Medicare, which essentially covers all other health services other than in-patient hospital costs, is paid for by monthly premiums usually deducted from a beneficiary’s Social Security check. People not getting Social Security checks pay their Part B premiums either monthly or quarterly.

Background point No. 2

By law, the Medicare Part B premium is supposed to be set at a level designed to cover 25 percent of the costs of running the program. That’s right: only 25 percent! As much as people, especially senior citizens, like to grumble about the costs of health care and insurance in this country, one fact they’ve got to accept is that they are getting a sweet deal when it comes to Medicare Part B. Congress asks them to pay only one fourth the costs of the program. The rest of the tab is picked up by taxpayers. (I realize my wealthier readers fork over higher premiums, so they pay a bigger share of the Medicare bill. But even they still get help from taxpayers when it comes to paying for Part B Medicare.)

Background point No. 3

For more than 40 years now, Social Security benefits have been tied to inflation. In other words, if the cost of living (as measured by the government’s “Consumer Price Index”) goes up 3 percent, Social Security beneficiaries get a 3 percent cost of living adjustment added to their monthly Social Security checks. But by the same token, if there is no inflation in a given year, then there will be no COLA increase.

Before we tie those three background points together, we must make one further point. Let’s call it:

Political maxim No. 1

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Don’t mess with grandma’s Social Security check. Politicians can engage in all sorts of sexual shenanigans and still get re-elected. Politicians can break laws and still get re-elected. Politicians can be hypocrites and still get re-elected. Politicians can say and do really dumb things and still get re-elected. But if a politician messes with grandma’s Social Security check, he or she will never get re-elected.

It’s the combination of those background points I made and political maxim No. 1 that leads to the current Medicare mess.

Per background point number 2, the Medicare Part B premium should be set at about $150 next year in order to cover one-fourth the costs of the program. And again, that money would normally be deducted from grandma’s Social Security check.

But because there was no measurable inflation in 2015, per background point No. 3, grandma isn’t going to get a COLA adjustment next year. So that normally means grandma’s Social Security check would actually go down in 2016. In other words, no Social Security increase, but a higher Medicare deduction would result in a lower Social Security check.

And that’s where political maxim No. 1 kicks in. We actually had a similar scenario a few years ago. Tens of millions of Social Security beneficiaries were scheduled to get lower Social Security checks because they were getting no COLAs while at the same time the Part B premium went up. Well, Congress stumbled over themselves and couldn’t act quickly enough to prevent that from happening. They passed a law that became known as the “hold harmless” provision. That law essentially says this: If grandma doesn’t get a COLA increase from Social Security, then grandma won’t have to pay any higher Medicare premiums.

And that same “hold harmless” provision will kick in next year. Grandma’s Social Security check won’t go up (because of no COLA), but it won’t go down either (because she won’t be charged the higher Part B premium.) That’s the way things will work for the vast majority of Social Security recipients.

But that “hold harmless” provision only applies to grandmas (and grandpas) getting Social Security checks THIS YEAR. It does not apply to people who will file for Social Security and Medicare in 2016. They will pay the higher premium. It also doesn’t apply to folks who are on Medicare but who are not yet getting Social Security benefits. And that includes all those folks who jumped on the maximizing bandwagon and “filed and suspended” their benefits. They, too, will pay the higher premium.

Why will those groups pay the higher premium? Because there is no Social Security check to cut. Remember, that’s the key to political maxim No. 1: Don’t cut grandma’s Social Security check.

And finally, the “hold harmless” provision does not apply to wealthy people. So my wealthier readers who are already paying higher Part B premiums will pay even higher premiums in 2016. Sorry, but political maxim No. 1 doesn’t work for rich people!