To understand this quandry, we need to look at the system for determining increases to Social Security benefits first.
Social Security – No COLA Increase for 2015
Let’s look at how it worked the last time there was no COLA. This is how future zero-COLA years will work as well.
For the year 2015 there was no Cost-Of-Living Adjustment (COLA) in Social Security benefits. This occurred because the Consumer Price Index (CPI) had not increased for the prior year (2014). While the COLA figures don’t parallel the CPI exactly, the CPI is a rough guide to follow when determining increases.
This was the third time in seven years that there was no COLA – before that, there was an automatic increase in benefits every year since 1975.
Impact to Medicare Premium
So what does this mean for Medicare premiums? Well, for most folks (about 75%) receiving Social Security, since you are already receiving Medicare Part A for no premium, there is no change. Since your Part B premium is linked to the COLA for Social Security, it remained unchanged for 2015. What isn’t linked to COLA is Part D drug coverage, so this increased for most all beneficiaries.
In the future, if there is another zero-COLA year, Part B premiums will likely enjoy similar treatment (unless the rules are changed).
The Other 25%
How can you know if you’re in the 75% that will have unchanged Medicare Part B premiums or the “other” 25%? One of the following three circumstances puts you into the “other” 25%:
- You don’t have Medicare Part B premiums deducted from your Social Security checks;
- Your first year of Medicare benefits is the year when there is no COLA for Social Security; or
- You make too much money, and are subject to IRMAA rules.
The first one seems pretty simple, but it’s more complicated than it seems. For nearly all Social Security recipients, deduction of Medicare Part B premiums is compulsory.
But there’s another, larger group that is enrolled in Medicare Part B that are not currently receiving Social Security benefits. Therefore, individuals who are not receiving Social Security benefits cannot have Medicare Part B premiums deducted from their checks. So this group is in danger of increased Medicare Part B premiums when most other enrollees are enjoying a premium increase holiday.
When these folks eventually apply for Social Security benefits, Medicare Part B premiums will be deducted from their checks – and they’ll be in the special 75% group that may (depending upon COLAs) enjoy a year or so with no increase to premiums. But this won’t apply to the first year of Social Security benefits – only after you’ve received benefits in one calendar year and received a COLA increase does this rule apply.
The second circumstance is cut-and-dried: since this is your first year of receiving Medicare, there was no previous benefit to apply an increase to. So you just have to accept the current standard premium, with no limitation for you. That is, unless you make too much money, because then the third provision applies to you.
So, what’s too much money? Medicare Part B premiums start to increase when your income is more than $85,000 for single filers, or $170,000 for joint tax filers. At this level, your Part B premium will increase by $54.10 per month, an increase of roughly 40% over the standard 2019 premium of $135.50.
As your income increases, the Part B premium increases as well, up to a maximum premium increase of $325 per month if your income is above $500,000 for single or $750,000 for joint filers.
Summary
For the majority of Social Security recipients, the overall impact is minimal, if not a positive.
This is not to downplay the significance, especially to low-income seniors who rely almost exclusively on Social Security benefits, as many other costs (energy costs, food, housing, etc.) have increased, plus the value of home real estate has decreased dramatically. These factors taken together can have a devastating impact on folks who have no other “safety net” available to them. If you’re not presently in the position to have these concerns, you should take this information as a warning: it is critical to develop additional resources to be ready and available in the case that subsidized sources of income are not available or are limited when in retirement.