Social Security benefits are projected to increase by a tiny amount in 2017. The 0.2% COLA increase projected by the Social Security Trustees report released on June 22 of this year, would theoretically, increase the average Social Security benefit of $1350 by $2.70 per month in 2017. But Social Security recipients won’t actually see that money in their pocket. That’s because the projected increase in Medicare Part B premiums will exceed the COLA increase.
Medicare Part B premiums are estimated to go up to $149 per month for most individuals who begin their Medicare coverage in 2017, according to the Social Security Trustees report. That’s more than a 22% increase compared to the $121.80 paid by most people who started Medicare coverage in 2016. Individuals who began their Medicare in 2015 or earlier generally pay $104.90 per month.
Normally, as Medicare part B premiums increase, Social Security needs to deduct a larger amount from your Social Security check to pay for the increased Medicare premium. In a year when Social Security has a very small COLA increase—or no COLA increase at all—this would cause your Social Security check to actually shrink.
Fortunately, a “hold harmless” provision in the law prevents most Social Security checks from going down due to an increase in Medicare premiums.
Here is a summary of how different individuals may be affected:
1. Those currently receiving Social Security benefits and having Medicare premiums deducted from their Social Security: Most of these individuals will not experience a decrease in their Social Security checks because of the “hold harmless” provisions.
2. Individuals who are on Medicare, but not receiving Social Security benefits: These individuals, comprising about 30% of the Medicare population, are not protected by the hold harmless provisions and most will see their premiums go up to $149 per month.
3. Higher earning individuals, regardless of whether drawing Social Security or not: You’ll notice that in #1 and #2 above I hedged my comments by using the word “most.” The exception was referring to individuals making over $85,000 (single) or over $170,000 for a couple, because these individuals are NOT protected by the hold-harmless provisions of the law even if they are already drawing Social Security Benefits. This means, that even if these individuals are receiving Social Security benefits, their Social Security check will be reduced to pay for the increased Medicare premiums.
These individuals will actually pay quite a bit more than the new projected premium of $149. The current estimates are that these individuals will pay anywhere from $204.40 per month for the lowest affected tax bracket, to as high as $476.20 for those in the highest bracket.
If you are a high income individual you may want to talk to your financial planner in the next few weeks to see if anything can be done to get you into a lower income bracket to lessen the bite from increased Medicare premiums.
4. Very low income individuals who are not drawing Social Security benefits: While these individuals are not protected by the hold harmless provisions since they are not drawing Social Security, they will NOT be affected by the Medicare increase. This is because they currently are not paying anything for their Medicare Part B premium due to extremely low income so the state of Colorado pays for their Medicare premium under the Medicare Savings Program.
HOT TIP! Here is one strategy to consider: If you are over the age of 65 and not drawing Social Security already, and you are NOT making more than $85,000 (single) or $170,000 (couple) based on your MAGI from 2014, you can still beat the 2017 Medicare premium increase if you apply for Social Security benefits before the end of November and request that your Social Security benefits start in December of 2016. This might be a good strategy for those who have delayed starting their Social Security and were thinking of starting their Social Security in early 2017. By advancing the start of your Social Security by a few months, you could be saving quite a chunk as you avoid the Medicare increase by qualifying for the hold-harmless provision.
Finally, the Social Security Trustee’s report projects that the annual Part B deductible will increase from $166 to $204 for all beneficiaries.
How this all shakes out won’t be completely known until Social Security releases their final figures later in October. I will probably be updating you on this in another post if the final outcome is a bit different, depending on Social Security’s final decision later this month.