Retirement Income Toolbox

December 15, 2017

I recently came across another great article by Mary Beth Franklin in the Nov 27, 2017, Investment News.   The information will certainly interest retirees and Medicare recipients.

The Centers for Medicare & Medicaid Services (CMS) announced on Nov 17 that the standard monthly premium for Medicare Part B, which covers outpatient services and doctors’ bills, will remain at $134 per month in 2018.

While this might seem counterintuitive, keeping the Medicare part B premium at 2017 levels will result in a 23% increase in monthly Medicare bills for most retirees next year.  This is because about 70% of Medicare enrollees, who are protected by a so-called “hold harmless” provision, currently pay $109 per month for Medicare Part B.

Medicare Part B premiums are usually deducted directly from monthly Social Security benefits.  The “Hold Harmless” provision prohibits annual increases in Medicare Part B premiums from exceeding the dollar amount of Social Security annual COLAs (cost-of-living adjustments) to prevent a net decline in Social Security benefits from one year to the next.

Because of low inflation over the past two years, most retirees benefitted from the “Hold Harmless” provision.

There was no COLA in 2016, meaning there was no increase in Medicare premiums for most people.  A small 0.3% COLA in 2017, which boosted average Social Security benefits by about $5 per month, held Medicare premium increases to about $5 per month.

But 2018 will be different.  Thanks to a 2% increase in Social Security benefits announced in October, average retirement benefits will increase enough to accommodate the $25 hike in monthly Medicare premiums next year.

Average Social Security benefits for retired workers will increase $27 per month to $1404 per month in 2018, up from $1377 this year.  As a result, higher Medicare premiums will virtually wipe out any increase in Social Security benefits for many retirees next year.

But some higher-income retirees could fare better.  The maximum Social Security benefit for high earners will rise by $101 to $2788 per month in 2018 and will be only partially offset by higher Medicare premiums – unless they are subject to a high-income sur-charge.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.