Contributed by: James Smiertka
We all know Medicare can be complicated, and the cost of benefits change each year. In recent years, you may have heard that you should expect rising premiums and higher out-of-pocket deductibles. These Medicare costs are tied to the COLA (cost-of-living adjustment) that increases the benefit of Social Security recipients each year. The Social Security Administration decides the year’s COLA based on the inflation rate from the prior year.
Most recipients of Medicare pay premiums for Part B coverage whether they pay for Part A coverage. Generally, Medicare recipients with 40 quarters of Medicare-covered employment receive Part A coverage while not paying a premium. Part A covers hospital stays, skilled nursing facilities, and home health and hospice care. Part B covers other things like doctor visits, outpatient procedures, and medical equipment. Premiums are also required for Part D prescription drug coverage.
So how exactly does this year’s 0.3% Social Security COLA tie in with Medicare costs?
In 2016, there was no COLA for Social Security, and with the increase in Medicare Part B premiums about 70% of Social Security recipients did not have to pay the higher premiums do to the “hold harmless” provision which prevents them from having their Social Security incomes drained by the rising Medicare premiums. With this year’s 0.3% Social Security COLA recipients can expect to pay just a few dollars more per month. The average increase will be about 4%.
Medicare announced increases of about 10% for 2017 part B premiums & deductibles. There are modest increases for Part A premiums, and Part D plans have already been set and are not affected by the Part A or Part B changes. This year’s 0.3% Social Security COLA will be too small to fully fund higher Part B premiums so many recipients will once again be saved from increases by the “hold harmless” provision.
Here are Medicare numbers for 2017 from Raymond James.
- Premiums are higher for those with higher taxable incomes ($85,000 for individuals and $170,000 for couples filing jointly).
- The average Medicare Part B premium in 2017 will be about $109 (compared to $104.90 for the past 4 years).
- Standard premium is increasing from $121.90 in 2016 to $134 in 2017.
- The Medicare Part B deductible is increasing from $106 in 2016 to $183 in 2017.
- The monthly Medicare Part A premium for those needing to buy coverage is increasing from $411 in 2016 to $413 in 2017.
- The Medicare Part A deductible for inpatient hospitalization is increasing from $1,288 in 2016 to $1,316 in 2017, with additional increases to daily co-insurance amounts for stays that exceed 61 days.
- The co-insurance cost for beneficiaries in skilled nursing facilities will increase from $161 in 2016 to $164.50 in 2017 for days 21 through 100.
For the 5 to 6 percent of enrollees that earn enough to trigger the high-income surcharges, here are the numbers:
If you’re not enrolled in Medicare, remember to enroll in the 7-month period around your 65th birthday, and contact your financial planner with any questions.
- For more in-depth information on the Medicare changes and how to choose coverage, you can view the recording of our recent blog from Sandy Adams, CFP® here.
- A recent blog from Kali Hassinger, CFP®, on this year’s Social Security COLA.
- More information on the “hold harmless” Medicare provision from this 2016 blog from Nick Defenthaler, CFP®.
- For the official U.S. government Medicare handbook visit the following link: https://www.medicare.gov/pubs/pdf/10050-Medicare-and-You.pdf
James Smiertka is a Client Service Associate at Center for Financial Planning, Inc.®
Any opinions are those of James Smiertka and not necessarily those of RJFS or Raymond James. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete."