Beware the Zero COLASubmitted by Compass Wealth Management LLC on September 9th, 2015
No, we're not talking about the soft drink – this COLA is the annual Social Security Cost of Living Adjustment. The Social Security Administration recently announced that there will be no cost of living adjustment for social security payments in 2016, due to continued low levels of inflation. This is only the third time since 1975 social security payments will not adjust for inflation.
While this is bad news for recipients of social security (many argue the inflation indicator used by SSA is flawed and does not reflect the true level of inflation in the economy), the negative is offset somewhat for those currently on Medicare – no COLA means no increase in Medicare Part B payments for 70% of Medicare recipients under the "hold harmless" rule. However, no increase in premiums doesn't mean Medicare program costs won't rise in 2016- they most definitely will.
Unfortunately, due to a quirk in the regulation that determines Medicare premiums, the remaining 30% of current Medicare beneficiaries, as well as NEW Medicare entrants for 2016, must bear the ENTIRE cost of any increase in Medicare program expenses for 2016. And they will pay for this increase for the rest of their lives by way of their higher Medicare premiums.
Those affected include the following:
- New Medicare beneficiaries for 2016;
- Individuals with Modified Adjusted Gross Income (MAGI) greater than $85,000 or couples with MAGI above $170,000;
- Those whose Medicare premium is NOT deducted directly from Social Security payments, including individuals who defer receipt of social security while receiving Medicare;
- Dual Medicare/Medicaid recipients whose Part B premium is paid for by the state.
While actual premiums won't be announced until October, it is estimated premiums for new recipients could jump from $104.90 to $159.30 per month, an increase of almost 52%! Higher income individuals could see their range of premiums rise to $223-$509.80 per month.
Please call me if you have questions about how Medicare premium increases may affect you.