By Mark Miller
Tribune Media Services
Good news is hard to come by in this economy, but seniors can celebrate the final numbers on next year’s Social Security cost-of-living adjustment (COLA) and Medicare premiums.
The Social Security COLA and Medicare Part B premium go hand in hand, since the premium cost is deducted from most seniors’ benefits. And while it was already known that the Social Security COLA for 2012 would be 3.6 percent, it wasn’t clear how big a bite Part B would take from the increase.
The official numbers may not merit the full hats-and-party-streamer treatment, considering how rough the economy has been for many older Americans the past few years. But they should be welcome news, nonetheless.
The base 2012 premium for Medicare Part B (doctor visits and other outpatient services) will be $99.90, up three percent compared with this year. And the Medicare Part B deductible will be $140, a decrease of $22 from 2011.
The government had been forecasting a $106.60 premium, which would have reduced the average Social Security beneficiary’s COLA to about 2.95 percent. The lower final number means that seniors receiving the average monthly Social Security benefit ($1,177) will see a net 3.3 percent gain in payments – just under $39 per month.
But don’t chalk up the lower-than-expected Medicare premium to moderating health care expenses. Instead, it simply reflects the fact that Part B costs will be spread across a much larger base of beneficiaries next year, due to the complicated way that Social Security and Medicare interact.
Part B premiums rose sharply in 2009 and 2010. In 2010, the base premium jumped to $110.50 from $96.40, and it rose to $115.40 in 2011. But about 75 percent of Medicare beneficiaries were exempt from the increases. That’s because no Social Security COLA was awarded in either of those years-and by law, seniors can’t be subjected to higher Medicare premiums if it means that net Social Security benefits would fall.
Premiums cover 25 percent of Part B program costs. But the “hold harmless” provision meant that in 2010 and 2011, that cost was borne by a much more narrow base of beneficiaries–low-income beneficiaries whose premiums are paid by Medicaid (so-called “dual eligibles”) and high-income seniors.
The high-income premiums are paid by individuals with $85,000 or more in annual income, and joint filers with income over $170,000, and they scale upwards through four income brackets.
Currently, the high income surcharges affect just five percent of seniors, but they are on track to hit 14 percent by 2019 due to the new health care reform law. The income threshold previously was indexed to inflation, but the Affordable Care Act froze the threshold at 2010 levels through 2019, starting this year.
High income seniors have been hit in a couple different ways over the past two years. They already pay additional premium surcharges based on their income levels, and their base premiums and and surcharges were greater than they would have been absent the “hold harmless” provision.
But the high-income group will see significant relief next year. Their base premiums will fall to the new 2012 level of $99.90 – a decline of 13.4 percent. And their surcharges will decline by a similar amount. All that is due to the fact that overall Part B costs will be spread across a much larger base of beneficiaries.
The Part B news comes as the fall Medicare enrollment period for prescription drug and Medicare Advantage plans is in full swing. Enrollment started earlier this year, running from Oct. 15 until December 7.
Average premiums for prescription drug and Medicare Advantage plans will fall 4 percent next year – but it’s still critical for seniors to re-shop their plans every year if possible. For example, among the top 10 drug plans–which cover 77 percent of enrollees-some are cutting premium prices, but six are raising prices.
High income seniors also pay surcharges for Part D prescription drug plans, but those won’t be changing significantly next year.
Mark Miller is the author of “The Hard Times Guide to Retirement Security.” He publishes http://retirementrevised.com, recently named the best retirement planning site on the web by Money Magazine. Contact him with questions and comments at mark@retirementrevised.com
This was printed in the January 29, 2012 – February 11, 2012 Edition
